# Focus Capital Advisers' Mordechai Yavneh on the greatest acquisition of all time (Valeura Energy) Yet Another Value Podcast · 2025-04-02 · 61 min · https://www.youtube.com/watch?v=VcpreOCNzMI ## Transcript Andrew Walker With me today, I am happy to have Mordechai on. I think this is the second or third time. Mordechai, do you know? Mordechai Yavneh Third. I know we did SMC. Andrew Walker Okay, third time. My friend Mordechai, how's it going? Mordechai Yavneh Good, thank God. Thank you for having me. Andrew Walker I should have mentioned that Mordechai is the head of Focus Capital Advisors and also has his shingle out for the outsourced consulting analyst role. People can reach out to Mordechai if they're interested in learning more about either. Mordechai, where can people reach you? Mordechai Yavneh You can look me up on focuscapitaladvisors.com—advisor with an E. That's our website. You can see all about the way we approach investing and analysis. My email is on the contact page, so feel free to reach out if you're interested in the fund or in outsourced idea generation, or outsourcing analysis of specific deals or ideas. It's something we've been doing recently as well. Andrew Walker Perfect. Speaking of diving deep into ideas, I think we have a fascinating one today. Before we get into it, I'll start this podcast the way I do every podcast: a disclaimer to remind everyone that nothing on this podcast is investing advice. Please consult a financial adviser and do your own work. That is always true, but there's an extra disclaimer here because this is an international, Canadian-traded company. Its assets are offshore in the Gulf of Thailand, and it previously had some assets in Turkey, so please keep in mind that there is heightened risk—country risk, country risk. Consult a financial adviser. This isn't investment advice. Mordechai, the company we're going to talk about today is Valeura Energy. The ticker is VLE. It trades in Canada, if I'm remembering correctly. I'd love to start by tossing it over to you: what is Valeura Energy, and why are they so interesting? Mordechai Yavneh Just for the introduction, people often approach investment ideas by saying, “If you like asset-light growth companies with turnaround situations, then this is for you.” No. 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's just off the charts. What is Valeura Energy? Valeura Energy is an oil company. Basically, all its producing assets are in the Gulf of Thailand. It is extremely profitable. It has lots of cash and no debt, and it's set to make basically its enterprise value over the next 2 to 3 years just from gushing cash, even at slightly lower oil prices than 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 could be profitable even at sharply lower prices—less profitable, obviously. At much higher prices, they'll be through-the-roof profitable. As things stand, they're set to make the entire enterprise value—the market cap minus cash—within 2 years. They are tremendously undervalued. The main reason I think for the undervaluation is that they're relatively new to the market. They used to be a company focused on some Turkish gas assets, which they sold off in 2020. They were basically a 1-asset company that was not being developed, that was on hold, and they had a bucket of cash looking for an acquisition. 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 2 deals in 2022 and totally transformed the company from basically a bucket of cash of $40 million into what it is now: the largest independent producer and the second-largest producer overall in the Gulf of Thailand. Instead of $40 million in cash, they now have $260 million in cash as of December 31, no debt, and a highly powerful company. Andrew Walker How did they get there from $40 million? Sounds like a great parlay. Mordechai Yavneh They made 2 acquisitions. The first acquisition was a very good acquisition. I haven't seen too many acquisitions as good as this one. Basically, they bought out the bankrupt KrisEnergy, which had gone bankrupt during the massive oil drops. They were highly indebted. They had a profitable field, but with the debt, they couldn't service it. They went bankrupt, and Valeura bought the Wassana field out of KrisEnergy's bankruptcy. They paid a relatively low price: about $3 million for the oil field and $9 million for the equipment that came with it. That rounds out to $12.3 million, plus another $7 million of contingent payments. Without getting into the details, about $2 million of that is really relevant. They passed on the other $5 million when they passed on part of the field to someone else. Basically, they paid $14.5 million for the Wassana field, which was already a producing field; it was just on hold. It had been on hold when prices had dropped to around $30 a barrel. Prices were back up to close to $100 at the time. When they were negotiating the deal, prices were more like in the $80s or $90s. It was ready to restart at about 3,000 barrels a day of oil, with the potential to rise to maybe 4,500 or 5,000 barrels a day. Opex was relatively low—about $36 a barrel—so it was profitable at $80, $70, or $60. It's a profitable field. They also bought a 43% portion of the Rossukon field, which they sold off afterward. Basically, they bought the Wassana field for $14.5 million. That Wassana field cash flows about $36 million annually after royalties, opex, and tax. Andrew Walker Let's pause here, because the next acquisition is the big boy—we're saving that until the end. I've seen your slides and followed your work. You consider it the greatest acquisition of all time, and it might be. I just want to pause here. They buy an oil field in the Gulf of Thailand for around $10 million. I have 2 questions for you. Most of my listeners are domestic. You say the breakeven is around $35, the wells produce 3,000 barrels a day. Would I be right to tell my domestic listeners, “Hey, offshore in the Gulf of Thailand obviously has its own political risk, but it kind of resembles offshore in the Gulf of America or the Gulf of Mexico—or whatever we're calling it these days”? Mordechai Yavneh There are major differences. First of all, just to talk about the political risk you mentioned, it's not nearly as much political risk as you make it out to be. Thailand has had an oil industry for decades and decades. They have a thriving workforce in the oil and gas industry, it's considered a major contributor to the economy, and they support the oil and gas industry. What I really want to underline is that they've never changed the deal terms. They've had many different tax regimes for the oil and gas industry—Thai 1 fiscal terms, Thai 2 fiscal terms, Thai 3 fiscal terms, Thai 4, and so on—but they've always changed them prospectively. Any concession that was already given stays under the terms it was given at the time. They've never changed the deal retroactively, and this has been the case for decades and decades. I don't think the political risk for the oil and gas industry in Thailand is that heightened. Andrew Walker I wasn't saying that there is no political risk. I just meant that there is political risk anywhere you have a government, and obviously Thailand versus America is different. Other things in Thailand, I think, would have heightened political risk. Thailand is not exactly known for being the easiest place to deal with. The government is not known for being democratic or non-corrupt. It's actually pretty undemocratic and pretty corrupt, and I don't know how many coups they've had since gaining independence—8 or 9? I'm not sure what number they're up to now. Mordechai Yavneh So, yeah, Thailand's oil and gas industry has been pretty insulated from the political upheavals Thailand has been having. Andrew Walker Just on the economics of offshore in the Gulf of Thailand, would people be right to think that it is not deep water, but relatively shallow? Mordechai Yavneh Pretty simple throughout: 1,500 feet at the deepest, more or less. So it's not 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: although the reserves appear on the surface to be relatively limited and your reserve life only extends out 2, 3, or 4 years, what actually happens is that reserves keep being refilled as you drill wells and infill wells. With more drilling, you tend to replace all the reserves, and your field that officially started with a 3-year life ends up lasting 30 years. Andrew Walker Yeah. And that's something you have to get into, because I think in this particular company, a lot of investors look at the company and see a very short reserve life index for how long the fields are going to last. Then they're going to have to pay for the abandonment costs and the decommissioning, and there's no far future here. That's really not the way it works in the Gulf of Thailand. Mordechai Yavneh It doesn't have large reserves that you tap into. It has multiple stacked reservoirs. The reservoir you hit is the one that gets officially counted as reserves, and the next one that you haven't gotten to yet isn't counted as reserves because you haven't actually proven beyond doubt that it's there. You have about a 95% success rate on every well—I have to qualify that. I'm not referring to Valeura in particular, but in general, you drill the next well and 95% of the time you get more oil from each well. So you drill 10 wells, and 9.5 of them will hit more oil. You produce 2 million barrels from your field, and during the production of those 2 million barrels, you discover another 2 million barrels. You produce what you have and just replace it, and you keep going. So it's not really the short life that it looks like it has. Andrew Walker Let me ask my second question. The fact that Gulf of Thailand wells refill isn't unknown. The economics of these wells aren't unknown. I think the first thing—and this will be a big question for the second one as well—that jumps out to me is: They bought this well for $10 million-ish, $10 million to $15 million, whatever you want to call it. Mordechai laid out the math. Oil prices were $70—actually, when they bought it, oil prices were approaching $100. The cash flow was $35 million, which was what they were making annually. Now, with lower oil prices of close to $70, it's only cash-flowing $12 million annually. So, with oil prices at that level, my math was that it was cash-flowing over $20 million—$15 million, whatever you want to call it. They bought this thing with great replenishing reserves for 1 times free cash flow. The question that immediately comes to mind is: Who was on the other end? Why are they selling this? Why wasn't there a competitive process? Mordechai Yavneh Buying out of bankruptcy often gets you good deals. That's not exactly surprising to anybody. The creditors have control of the company. They're looking to sell off assets, not operate them. There weren't that many players. The majors aren't dealing with such a tiny oil field of 3,000 barrels a day; they have no interest in it. There aren't that many regional players in place to make bids. There are a couple of regional players that one could say are similar in size and ambition to Valeura, but a lot of them were, and are, indebted and facing operational troubles of their own. Otherwise, they weren't really available to make a bid on all the assets available. There was a bidding process. I believe there were other bidders, and Valeura won the process. Andrew Walker But just think about the other bidders. You've got to process this: These guys bought it for 1 times cash flow. It seems like the other bidders—if you and I were sitting there, we'd be saying, “Our bid of half a year's worth of cash flow didn't get accepted.” Why? Mordechai Yavneh The field wasn't producing at the time. It was on hold. They had to spend a year or so fixing up the equipment and getting it running. Then, immediately after they got it running, they had to halt production. There was an issue, and then another issue 6 months later where they had to halt again. First, one of the ships brought to the area to work on the field managed to hit one of the legs of the platform. They had to deal with that, and then a crack was found in one of the platform's legs. Even now, they're admitting that the platform is nearing the end of its life. They're going to have to replace it or, more ambitiously, start a whole new, larger platform, which is what they're considering. We'll talk about that later, as they look to expand the whole development. It's not as if they were buying something that was cash-flowing at the time they bought it. A year and a half later, after more money had been put in, is when it started producing cash flow. And it was a bankruptcy, so I don't think it's surprising that they got a good deal. You'll find a lot of situations like that. Andrew Walker I don't know. Why don't we go to the second acquisition? Mordechai Yavneh The first acquisition is what brought them to Thailand. Now they're a player in Thailand. They have a pretty small asset there, and then they came to what I would call the greatest acquisition of all time, where they bought out Mubadala Energy's Gulf of Thailand assets. Mubadala Energy is an arm of one of Abu Dhabi's sovereign wealth funds. Mubadala Energy decided to exit the Gulf of Thailand oil industry and put the assets on the block, and there was a bidding process. Valeura bought what was basically about 20,000 barrels a day of flowing oil. This oil was on and working. When they announced the deal in December 2022, they closed it in March. As is often the case, when they announced a deal, the effective date isn't the date of closing. A lot of times in the oil industry, the effective date is earlier. In this case, the effective date—the time that all the economics accrued to Valeura—was September 1st, before they signed the deal. They closed in March, but the previous 7 months of production, from September 1st to the end of March, all accrued to Valeura. That money was kept in a lockbox in the company, stayed with the company, and went to Valeura's credit. They were getting the entire enterprise—not just the fields they were buying, but all the employees. Everybody carried over. The only person who didn't come over was the Thailand country manager, who was Mubadala's person. But the entire enterprise—all the employees, staff, technical and engineering personnel, and layers of management—went over, lock, stock, and barrel. It was 20,000 barrels a day across 3 different oil fields: Jasmine, Nong Yao, and Manora. These were making net about $15 million a month, and Valeura bought them for $10.5 million. Andrew Walker Okay, so just for the record, since all the economics from September 1st to March 22nd accrued to Valeura, on March 22nd Valeura gave Mubadala $10.5 million and received $15 million times 7, or $105 million. Let's pause there, because I think this is the thing that breaks my mind when I watch this. The first time people listen, they're going to say, “Oh my God, Mordechai.” They signed a deal in December, with retroactive economics to September, and closed it in March. They get paid eight times what they're paying upfront for it. Right off the bat, their IRR is infinite because they're getting paid for it, and they get an asset that's producing basically their purchase price in cash flow every month, right? Mordechai Yavneh When I hear that, I say again: much more than the purchase price in cash revenue per month. Andrew Walker Yeah, exactly. Per month. I said per month. Yeah. So when I hear that, my first thought is, yes, Mordechai 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 thought is: Why is this not too good to be true? I had a friend recently who sent me an email and said, “Hey, I know you're in finance. Somebody brought me this crypto hedge fund. Can you take a look at it? It has some terms I don't understand.” They were promising 4% annualized per day. I said, “Look, I don't say this lightly, and I wouldn't put it in an email, but that's a fraud, man. Come on. That's a Ponzi scheme. There's no chance.” If somebody put this in an email to me and told me the deal terms, I would say, “That's absolutely a Ponzi scheme or fraud. There's no chance.” I wouldn't want to join this deal either, for fear of that. Mordechai Yavneh First of all, in this situation, the deal already happened. We're not talking about a future deal. This was in 2022. We're now in 2025. It's done. It happened. Here we are. That's one, obviously. But, two, how did it happen? It's mind-blowing. There are really 2 things that go together. One of them the company kind of hinted at publicly. The other one they didn't really talk about, but speaking to management, they did explain the background to me. First of all, Mubadala was looking to exit the Gulf of Thailand because it wanted to focus on clean energy. It was getting rid of its oil assets for ESG reasons. Coming from Abu Dhabi, the United Arab Emirates, the fact that it was focusing on getting rid of oil for ESG reasons is—I’m not sure what the world has come to. It’s mind-boggling, but Mubadala Energy is a sovereign-wealth-backed company that 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 have got to be other buyers out there. What in the world? Other people should be interested in such a deal.” The real answer is that 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? They were working on this deal in 2021, and Valeura won the bidding process at a much higher initial price, much higher than $10.5 million. What then happened was that the sellers went silent. There was no contract. They had gone through an informal auction process, but nothing was signed yet, and the sellers went silent. It appeared that the reason the sellers went silent was because the price of oil had gone up a lot, to $100 a barrel. They were having second thoughts: It was a really profitable asset, and they didn’t really want to sell it. Maybe they should keep it. It was making money. People like money. I also like money. I understand it. Mordechai Yavneh Eventually, they resurfaced and said they had been having cold feet and dragging, but the higher-ups required them to exit. They had to exit, but they felt stupid about all the cash flow that had been pouring in over those months and didn’t want to give it away. So what they did was, instead of signing the contract for the original—let’s say, I’m making up a number here, $150 million—and having it effective from the beginning of January 2022, which would have been the norm when they were negotiating, they said, “You know what? We’ll keep the economics over the last months, and you’ll get the economics from September. That seems a little unfair to you, right? Therefore, we’ll drop the price by the amount of money we made from January to September. Instead of $150 million, effective from January, we’ll make it $10.5 million, effective from September 1st.” But this was already after the deal process was concluded; they didn’t reopen the deal process. Andrew Walker I understand everything you’re saying, but that is a gift, right? I mean, they’re gifting hundreds and hundreds of millions of dollars of value to this person. I guess I have no more background to share with you. I do not have any friends in Abu Dhabi or on the board. I really can’t explain the process. I’ve been involved—I mean, I’ve had oil and gas companies in sales processes before—and I know that if oil and gas goes up $5, everyone blows up the deal terms, right? The sellers want more. If oil and gas goes down $5, the buyers blow up the deal terms. Everyone wants more. What you had happen here was a 10-month pause, right, where oil prices went up, the company said, “Hey, we don’t want to sell. We want to keep all this money.” Then eventually they came back and said, “Hey, let’s just keep the exact same deal terms and lower the price. That cash gush we got, we’ll just lower the price for you.” It just doesn’t make sense. It’s the biggest gift I’ve ever heard of to anyone. My first thought when I saw and heard this was, “Oh my God, this is the best thing, but I need to check who their auditors are.” They’re Deloitte, reputable auditors. That’s how incredible of a deal we’re talking about here. Mordechai Yavneh No catch. Nothing’s being hidden there. You want to know how much oil is produced? That’s on Thai government websites. They keep track of the oil being produced from the wells. You can get monthly reports from Thailand, and it’s very easy to keep up with. You can get the information in advance of the quarterly reports. You can find out how much each of the fields is producing. You just have to do the math. Some of the fields have a 90% interest, some have a 70% interest, and you can calculate exactly how much oil is being produced. The price of oil is public. There’s really not that much that can be hidden here. Andrew Walker So, let’s—I mean, I get it. Yeah, I agree with you. I call it the greatest acquisition of all time because I can’t think of anybody who could find a better acquisition. It doesn’t really make sense. I don’t understand Mubadala Energy. It was a strange process that got it to that deal, but even the original $150 million deal—or whatever the number was—seems to have been a decent deal anyway, just for the assets as they are. These are assets that were producing, at $100 a barrel—which was the price when it was being negotiated—$150 million or more a year. The last thing, again, is that it’s such a good deal. It’s one of those things where, if the deal economics were worse, I’d almost be more understanding of it. One last question I have: It does strike me—I know a lot of companies that did M&A in oil and gas in 2022, and people can remember: post-Russia-Ukraine, oil was $100 and natural gas was $9. I remember having a conversation with a U.S. natural gas CEO in June 2022, and on that day he was saying, “I just keep doing the math, and natural gas is $9. I don’t know how we’re not going to $15. The demand is just outstripping supply too much.” That was the day that the big LNG facility in Louisiana had an explosion and took like 2 BCF per day or something offline. That was literally the absolute top. I think about that story right around that time. Anyway, the reason I mention this is that they did 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, they’re such good deals that they look good in hindsight today, in 2025. I would say these are the only deals I know that were done in 2022 in the energy space where the buyer seems to have come out ahead—not just come out ahead, but literally gone to the top of the mountain on them. So, how could they structure deals so good that even with the energy environment that has developed over the past 3 years, they’re just this far ahead? Mordechai Yavneh No comment. I do love the company’s patience. They waited. They didn’t take the first deal they saw; they waited until they found a good deal. We’ll talk later, but these 2 deals, which seem separate, actually dovetail very well. The deal that they negotiated second but signed first—the smaller one from bankruptcy—actually came with a load of $400 million in tax losses. When they bought the Mubadala Energy assets, and after spending a good year and a half on the paperwork and the technical and legal aspects of combining them, they were able to spread the $400 million of tax losses—not over the measly Wassana field, which was small and wasn’t really big enough to use all those tax losses, but over most of the entire company. That means that the first company they bought for $14.5 million not only gave them a producing oil field; they also got tax losses worth $200 million once they combined it with the other company. Andrew Walker Is that unique to Thailand? In the U.S., if you bought a company out of bankruptcy, you wouldn’t inherit its tax assets? Mordechai Yavneh I don’t know the legal aspects. It’s just another thing: For $10 million, they buy a company, they’re buying it for 1× cash flow, and they get 40 times their purchase price in tax assets. Andrew Walker Let me ask a separate question. At this point, this is known, right? You and I are talking here; it’s approaching mid-2025. It’s been 3 years since the first deal and 2.5 years since the second deal. You’ve got basically 2 years of full-run-rate financials. I’m staring at their 2024 audits: 2023 basically had a full year, and 2024 definitely had 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? Why is the opportunity here when these were incredible deals? Maybe you have doubts about them, maybe not, but it’s in the numbers. They own the assets now. This is a $600 million market-cap company with—Bloomberg says—$160 million in cash. I think you said a little bit higher number, but we’re talking about paying $600 million as of the end of the year. We’re talking about paying less than 2 times operating cash flow. There is real capex; we’ll talk about that in a second. But we’re talking about paying less than 2 times operating cash flow for a management team that’s proven it can create the greatest deals of all time. What is the market missing here? Mordechai Yavneh I think it’s a combination of 2 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 that get a huge chunk of good news are sometimes not able to fully incorporate the greatness of the news simply because the people who look into it and are interested and buying eventually max out their capabilities. Most people are not willing to go 100% into one stock, however great the deal is. They're not willing to go 50% or 20%; they'll go to 5%. Some people are adventurous and highly concentrated. They'll go 10%–15%, and they'll max out. I often find that very large bad news is usually much easier to get fully incorporated, although even that doesn't always happen. But very large good news can max out the people who are aware and interested. The second thing is that it's still a relatively small company. It's traded on a Canadian exchange, and Thailand sounds weird. It's a $650 million market cap, so there are plenty of institutional investors for whom it's not a fit. It's the oil industry, and I'm not an oil expert. There are all sorts of reasons why it doesn't get attention. Listen, the last conference call on YouTube had, I think, 29 views the last time I heard. It doesn't have as much exposure. I mean, did you hear about it before I mentioned it to you? Andrew Walker No, I did not. Mordechai Yavneh It doesn't have as much exposure as it deserves, and I think part of the reason is that the story has yet to fully percolate through the industry and through all the people out there. That's part one. Part two is that when people open up the financials, there are certain things that don't screen that well. 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 5 years, and then in 5 years I'm going to have this multimillion-dollar liability to decommission. 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, it had a reserve life index of 2.5 years, together with a $200 million or so decommissioning liability. If you just did 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 I'll make from it, and take out the decommissioning liability, I don't make any money.” I got that pushback from people I showed this to. This ties back into what I said earlier: the Gulf of Thailand works very differently geologically than many other oil basins. Officially, the reserve life index is 2.5 years, 3 years, or 4 years, but it lasts for 30 years. You drill, and all the oil that you produce is replaced by drilling that finds more oil to replace it. As I said, it's reservoir space after reservoir space—reservoir next to it, reservoir next to it. You move over 10—not 10 feet, whatever; you know what I mean—and you get more. Andrew Walker Let me pause you there. I think I see where the variant view is. At this point, it seems like the market has caught up and said, “Hey, these are great businesses.” I'll use, let's say, $150 million in free cash after P&A for 2024, and we can talk about whether that P&A was too high or not. I think the difference that you are seeing versus the market is that the market has seen these are high-decline wells, and there's not a lot of life to them. If I said, “Hey, these wells are all going to be gone within 5 years, and I'm trading this at 4 times free cash flow, with some decommissioning liabilities,” that actually gets you to about the stock price, right? What you are saying is, “No, the life of the wells is way understated. There are a lot of proved undeveloped reserves that aren't even on the books.” I've got 25 years of life here, not 5 years. So I am buying, and basically the market is giving me that back half—20 years of life—for free. By the way, the decommissioning liability that the market is discounting—that they're going to have to pay in 5 years, at the end of the life of these wells—I can decommission them in 25 years. So I get 20 years of extra NPV on that, plus 20 years of extra free cash flow, and that's the difference between the two. Would you argue that the alpha opportunity is there, plus probably great dealmakers here? Mordechai Yavneh That is the alpha opportunity. I don't want to overstate the dealmakers, by the way. Part of it is the patience, but I don't think patience can get you this good a deal. This good a deal needed a confluence of luck. Andrew Walker Yeah. I've been skeptical of the deals. You say that, but they did it twice. Mordechai Yavneh 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're right now at about 25,000 barrels a day, and their aspirations are to reach 100,000 barrels a day. They keep talking about wanting to do more inorganic acquisitions. But they also seem to be serious that they don't want to do just any inorganic acquisition. They want to do one that's cash-flow accretive—maybe not as great as what they got, but a good deal. I think their history has shown that they're willing to be patient. They've had cash burning a hole in their pocket for a few years before they signed the deal, and then they signed good deals. Since the end of 2022, they've been talking about doing more deals. Two and a half years have passed, and they haven't done another deal yet because they haven't gotten the right deal. Usually, acquisitions are something I frown upon. The academics say that it's usually a bad idea. In my experience, like 90% of the time, big acquisitions tend to be managers increasing their fiefdoms. They don't care about shareholder value, and it's not worth it. Is it really worth it? You see it all the time. Again and again, they buy it. I don't know if—just in the recent news—Dollar Tree bought Family Dollar for $9 billion and sold it for $1 billion. This is the story all the time. It's crazy how often it happens. So I usually frown on acquisitions, but I'm going to give them the benefit of the doubt here that their capital allocation has been stellar and that they want to continue doing that. We'll see if they're able to come up with another one. I'm not counting any inorganic acquisition in my analysis of how great the stock is, but I think if there is an inorganic acquisition, that would be great. Organic growth, however, has 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 that I do believe the big variance here is on decommissioning liabilities, the reserve life index, and the high decline. That's definitely a major part of it. But I don't think there's really a variance of views if you look into it. If you look into it, I think it's absolutely clear. There are many slides that the company shares that really get to the heart of the matter. They really pound away on this. They show you, for the whole Gulf of Thailand—not just their assets—the average reserve replacement, meaning how many reserves they find every year to replace the oil they produce. The average reserve replacement for the entire Gulf of Thailand is 122%, meaning you're replacing more than you produce. Then they show you the assets in particular. Jasmine, going back years, is one of their large, nice fields, somewhat later in life. It started in 2005 with supposed reserves of 7 million barrels. Since then, it produced 95 million barrels and ended 2024 with 17 million barrels of reserves. It started with 7, produced 95, and has 17. I'm looking at that, but it's not a reliable number. You cannot look at that and say, “Oh, there's only 17 million barrels. Don't expect it to draw more than 17 million.” Seventeen million is what it is. Here's Nong Yao. Nong Yao is the most profitable, has an OPEX of about $15 a barrel, and is gushing oil—very profitable. It started in 2014 with 3 million barrels of reserves. It's produced 29 million, and now, at the end of 2024, it has 16.9 million barrels in reserves. That's far more than what they started with. This is the story of all their fields. We can also talk about their operatorships and when they've gotten them. Here they have all the fields combined: Jasmine, Nong Yao, and Manora. Altogether, at the end of 2019, they had 20 million barrels of reserves. They produced for 3 years, and at the end of 2022 they had 21 million barrels—the same as when they started. So you're not actually using up your reserves when you produce. But I just want to speak about their own personnel: when they run these fields, they put in a little bit more money—not just using them as a cash cow, but looking toward the future. Let me just find my notes to get the exact numbers here. In both 2023 and 2024, the reserve replacement was not just enough to replace everything they produced; it replaced more than twice what they produced. I have the number here. One second. Andrew Walker Let me ask 2 questions about this. For those of you who are interested in this idea—which I'd be surprised if you weren't at least somewhat interested in it after listening to this pitch—you can follow along with a lot of the math and the numbers Mordechai just gave out in their March 2025 Capital Markets Day presentation. I'm just flipping through it. This stuff he just laid out on reserve replacement is all very nicely and neatly laid out in the asset-by-asset breakdown, which is around slide 43. Let me ask you 2 questions here. I understand they drilled, and this field was supposed to have 7 million in it. Here we are, 20 years later, and it's produced 95 million, and it still has 16 million of life left. I mean, there are only so many dinosaurs that have died. That has to end at some point, right? Part of the reason I'm sure they're having all this extra success is that the technology has gotten a lot better for extracting oil. Then they do the infill and, as you said, they do the well right next to it. But when does that end? At some point, there are just no more dinosaurs. Mordechai Yavneh There's no way for me to answer you, and the company will never say anything other than the reserves. They're not going to get up and say, “We're going to tell you this is going to last until 2050.” No one's going to tell you that. They're not going to tell you officially, “Our reserves peter out in 2033,” or whatever it is. But let's remember that when they bought the company, their fields were supposedly ending. They bought Manora. Manora was supposed to be decommissioned in 2025. More infill drilling, and we pushed it off to mid-2026. Then, when they got control of Manora, there was more drilling, more assessment, and more appraisal. In 2023, they pushed Manora off for 1.5 years. Then, in 2024, with production, they pushed it off another 2 or 3 years. So now Manora, which was supposedly being decommissioned—and, in fact, they already had to give the Thailand regulators $22 million of restricted cash to cover the imminent decommissioning of Manora—is now projected to last until mid-2030. Can I prove to you that in 2025 the appraisal drilling will push Manora out further? No, I can't prove it to you. But is that the way to bet? Yes. In 2024, the drilling pushed out every single field's end of life by between 2.5 and 5 years. Originally, their latest field was supposed to end in mid-2027. Now their fields are going to the end of 2035. Andrew Walker Let me ask another question. If I'm just looking at whether they'll last to 2050— Mordechai Yavneh I don't know. If you ask me, I think in 2050 we'll be talking about, “Well, is it going to last another 2 years or another 5 years?” We'll have the same question. Andrew Walker They have, on their slides—and I'm looking at slide 10 in their capital markets deck—they give their NAV of C$13.60 per share. The stock, as you and I are talking, is C$8.35 per share. That's significant upside, right? More than 50%. I doubt anyone wouldn't take more than 50%. Mordechai Yavneh That's without counting any upside from the future. It's just counting the actual reserves on the books, with the decommissioning liability at net present value, taking out the opex and capex that's necessary to get the oil out of the ground. Taking all that into account, it's about C$7.59 for the oil, minus all the liabilities, plus the cash on hand. That's how they get to that C$13.60 number. Andrew Walker I'm also just laughing. I hadn't seen this slide before. It's slide 11 of their investor deck—I guess it's slide 10, but it's 11 in the PDF. It's their returns versus all of their peers since they started the strategy. They're up 1,400%, while the average peer would probably be flat, and the second-best peer is at 135%. So they're 10 times the second-best peer. I'm just laughing. Let me ask you another question. Obviously, you think there's a long life here. I believe the way the Thailand leases work is that all of their concessions with Thailand end 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's a question of: 2031 comes up and these leases are up. What happens? Is the extension just, boom, you extend it 10 years, same terms, done? Or do you have to renegotiate some of the royalties, taxes, and all that sort of stuff? And, I guess, is there a history? When you get to 2040, all these extensions are done—that's obviously 15 years in the future—and I think the stock price and NAV are only incorporating 5 years or so. But I'm curious: what happens when these extensions are done? Because you mentioned 2050 earlier, and talking about how many years these have left, obviously they would need to renew the concessions. Mordechai Yavneh 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's 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 the same terms? Yes. Is it absolutely simple, or do they need to give guarantees of the amount of money they'll put into working on it and perhaps a small signing bonus? They probably have to give some guarantees and maybe a small signing bonus, but nothing major. They're not going to 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 for how to get another extension? The answer is, I have no clue. So, yeah, the fields—I don't know when they'll end. At that point, that's a little more tricky. Andrew Walker Yeah. Okay. But, as you said, this is not at all being incorporated in the price. We don't need 2040 oil to explain the stock price, certainly not 2050. Even just the oil as it is now, without any reserve replacement, we're 50% undervalued. Mordechai Yavneh And the fact is, with reserve replacement, and if we could take these fields to 2040, this is not just 50% undervalued. It's like a third of the expected net asset value. By the way, we're discounting that at 10%. When we say it's worth C$13.60, we mean that if you paid C$13.60 for it, you'd be making 10% on your money over time, discounted at a normal discount rate of 10%. It's not like this is what it's actually worth. It's worth C$13.60, and you'll make money on that. So if you're paying C$8.35, it just writes itself. Andrew Walker Look, I think we've—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. You've spoken about this idea in a few different places, and I know you've—anything else people should be thinking about, or any other questions people ask that you think we should address here? Mordechai Yavneh I'm just going to say 2 more points—3 more points, actually, now that I think about it. One is that, when you're—you mentioned this, really, and I just want to underline it—not only are you getting reserve replacement and getting more revenue, you're pushing off the end of life. That means the liability of decommissioning is not looming large and soon; it's looming far off in the future, which at a discounted value is worth much less. In addition to that, they've been putting a lot of effort over the last 2 years into engineering studies on the decommissioning liability. They've been incorporating the latest technologies, with a lot of decommissioning going on well by well and different new ways of doing decommissioning in the Gulf of Thailand, reusing parts and things like that. They've been able to do these engineering studies that bring down 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. Simply bringing down what the actual cost of decommissioning will be, between pushing it off into the future and bringing down the ultimate cost, they've brought down the decommissioning liability from approximately $200 million to about $90 million, a reduction of more than 50%. That's on the books. It looks much better now when you only have an $84 million decommissioning liability instead of what they had before, a $200 million decommissioning liability. That looks much better just on a screening basis. That's one. The second thing I want to point out is their capital allocation. We've been talking about capital allocation. They've been very good operators and very savvy operators. They have 1 rig that they're renting to use in their various fields, and they've used it in very clever ways. When it was taken down, they managed to move the schedule around. They got more drilling done than the amount they originally expected. You're paying for the drill for the year, so if you're able to drill more wells, your cost is the same, but you're getting more out of it. They've been able to do appraisal wells that turned into development wells, getting an appraisal and a development from the same well. And there are a lot of other things like that. You can read their capital markets deck. They have a lot of interesting tidbits about advancements they've made in the type of steel casing they use, the way they do the well, and the type of technology they use. They didn't invent any of the technology, but they're using it well and operating well. They've optimized their ship fleet to share ships among the various fields. They've also optimized how they save money on gas by idling engines in certain ways that are a little bit nonstandard but save money. They're installing, as we speak, a BTU generator at Jasmine to use the waste gas as fuel instead of having to pay for fuel. Supposedly, it's environmentally friendly, I guess, instead of wasting the gas, but it's also saving money on capex and opex. There is more capex, but they bought the Nong Yao floating storage facility for $19 million, and that has a 2-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 I wanted to make. The third point I want to make is, we've been speaking the whole time about how undervalued it is—just what there is, even without reserve replacement, and much more so with reserve replacement. That's just what you see is what you get. Then maybe they'll do another great acquisition; there's no way to know about that. But I want to talk about the more organic growth here as well. They're spending a minimal amount: $8 million in 2024 on exploration, and they're expecting to spend $11 million on exploration in 2025. I just look at them this way: some of the capex is sustaining, and some of the capex is growth. The capex for the year is expected to be about $135 million, plus another $11 million for exploration. Maybe about $100 million of that is sustaining capex; the rest is growth. I just look at all of it as—we'll call it sustaining—and it's still a great deal. I know I don't have to piece out what's sustaining and what's growth. We'll just call it an expense, and it's still coming out nicely ahead at $75 a barrel. They're still making $150 million a year, even if you call all of that sunk cost and don't count any growth. Just replacement value. There are definitely a few areas of organic growth, including an upcoming catalyst that people might want to keep an eye on. They have a Ratree exploration well in Jasmine that's going to be drilled sometime this year, I believe in Q3. I don't remember exactly; they have it on the slides, exactly when they're drilling that well. That's pretty exploratory, but it could really open up a whole new area of the field. They had Nong Yao C; Nong Yao C was started last year, and it's been gushing oil. They have a few appraisal wells that have already been drilled at Nong Yao and have come up positive, and they're doing more this year. We could probably expect a whole new Nong Yao reserve base, which is not in the reserves at all and is not part of reserve replacement—just a new area of the field. That's unrelated to Jasmine, next to it, and can share facilities; you link it via pipeline. It's really a new section of the field that's up and coming. The next catalyst is the Wassana field. The Wassana field is now making about 4,000 barrels a day from a small, mobile platform that's reaching the end of its life and has to be replaced. Right now, the official reserve report assumes that they're going to replace the mobile platform with another mobile platform, and that's the cost they're taking into account when they come out with their net asset value of C$13.60 a share. But what they're actually looking at doing is this: the mobile platform is relatively small. If they replace it with the same mobile platform, it can't reach as much oil as is available throughout the Wassana field. Then there's Wassana North and Wassana South, both of which have appraisal wells and exploratory wells that have opened up sections of the field. What they're thinking of doing—and it really looks like they probably are going to do it—is building a new, more permanent platform, moving it over to be more in the center of the field and having a larger catchment area. The final investment decision is coming at the beginning of Q2, so within a very short amount of time—a few months—we should find out what's happening on that. Later on, you'd be able to build, like they did with Nong Yao C and maybe Nong Yao D, smaller platforms to the north and south that connect. The final investment decision we're talking about—building a bigger platform—would add about 10–12 million barrels of oil to their reserves. Then we still have Wassana North, which we're not counting yet because we haven't made a decision about expanding, but that expansion is real and very likely to happen. It would cost about $150 million to develop that platform, for which you've got 12 million barrels of oil, plus all of the reserve replacement that comes with that, plus Wassana North later on and Wassana South later on, which comes with some more capex. That would probably come online sometime in 2027. They're saying 2 years from when they start, so Q2 2027 is when they would get first oil from the larger new platform instead of what they're doing now. They haven't officially made a decision on that. They said the decision was coming in a few months. When that comes out, they're going to have a new reserve report to match, new capex guidance to match, et cetera. But that's very likely to add much more to the story here. I just want to underline that whenever they speak about acquisitions, they say they like acquiring fields that have the opportunity to sink capex in at profitable rates, and that's exactly what they got here. They got a small field that has the ability to become a large field, with the ability to become a mega-field, and that's what they're looking for—and that's what they got. Again, the 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 it costs to develop it, and the number is somewhere in the range of 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. Andrew Walker Well, we're running quite long at this point, so I think we're going to have to wrap it there. It's just a fascinating study, and as you called it, I didn't believe it when I saw the slides. I can't think of another acquisition. People say, “Oh, Google buying YouTube or Facebook buying Instagram.” Those were multi-bagger, multi-multi-multi-bagger home runs. But here, you had a multi-bagger from day 1, right? They gave you 8× your purchase price on day 1, and then you had these cash-flow-gushing assets. It's just like nothing I've ever seen before. So, Mordechai, this has been great. Thank you so much for coming on for the third time, and I'm looking forward to the fourth time. Mordechai Yavneh Okay, great. Thank you for having me again.