Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
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Mostly sentiment driven but the consistent inability of Trin to find a way to lift production or offer some credible hope for the future is the biggest driver.
There we go. It did not take much to make you admit the reality of the toxic fiscal regime in Trinidad.
“Obviously there’s no contract mandating that Trinity must invest its SPT windfall, but anyone who thinks that Trinity, having persuaded the government to enact such reforms on the basis that it’ll invest in boosting production, can instead spend the windfall on dividends is delusional. It would be thoroughly dishonest and, since Trinity is dependent upon the government of Trinidad in so many ways, shortsighted. Not only could it result life being made difficult or the reforms being reversed…”.
Cue more misallocations of capital like Jacobin and a shrinking margin of safety, even for value investors. Or get rid of the BoD that collaborates with this fiscal tyranny.
And with that post you reveal so much about yourself.
Trinity, the largest small producer in Trinidad (it produces about 5% of Trinidad’s oil), has been a leading member of the campaign to reform SPT. It’s expressly argued for reform on the basis that it will enable Trinity to invest in expanding its own onshore and offshore production. As significant incremental reform has taken place over the past three budgets (reform now worth millions of dollars per year), Trinity has lobbied for more (here’s Jeremy Brindglalsingh’s response to the September 2023 budget: “Whilst we believe this is a positive development, and as such is to be welcomed, Trinity will continue to champion tax reform to make investment in Trinidad competitive in an international context as we continue to build our business in the coming years.”).
Obviously there’s no contract mandating that Trinity must invest its SPT windfall, but anyone who thinks that Trinity, having persuaded the government to enact such reforms on the basis that it’ll invest in boosting production, can instead spend the windfall on dividends is delusional. It would be thoroughly dishonest and, since Trinity is dependent upon the government of Trinidad in so many ways, shortsighted. Not only could it result life being made difficult or the reforms being reversed (indeed more might not have been implemented if investment hadn’t started to increase in 2021), but also prevent the next lot from being implemented. And the next lot could be particularly useful.
Here’s the Energy Minister on December 13th: “I am hoping that within this fiscal year, we will come back with some more. I can indicate at this stage because I know that those in the energy sector is looking on and listening very closely.
“Another area that I intend to take to the Ministry of Finance for us to address will be the capital cost recovery. I have listened very carefully; we have heard what they have said. We are not going to go the kamikaze way that took place in 2014 that almost crashed the revenue stream for Trinidad and Tobago and allow a full 100 per cent write-off in one year. But we are looking, I would be speaking to the Minister of Finance and attempting to persuade him and the Cabinet for us to change from the current 2020/2020 write-off period, 20 per cent over a five-year period to get 100 per cent to front-load the write-off period. We have not come up with the figures and the formula as yet, but I prefer a front loading at this stage with a provision that says you have to reinvest the money saved right back into exploration and production.”
You have still not backed up your statement. We all know that the recent modest tax reforms are intended to incentivise/encourage investment in additional production, but in what sense do they mandate it? Where is “the deal” that obliges TRIN to continue to make mistakes like Jacobin? Surely the TRIN BoD are free to do whatever they decide is in the best interests of their shareholders. There is no “deal”.
“There is an industry wide call for more fundamental SPT reform to encourage greater investment in the energy sector, and we remain at the forefront of discussions which we hope will result in further significant changes in due course.” Bruce Dingwall, October 11th 2019 - https://www.lse.co.uk/rns/TRIN/trinidad-and-tobago-budget-highlights-5pdwy4q3dx8ox8q.html
“We are keenly focused on improving the investment climate in the energy sector through a review of the Petroleum Taxes Act with a view to simplifying the existing oil and gas fiscal regime and making it more competitive to investors. We are also reviewing the application of the Supplemental Petroleum Tax (SPT), particularly for small producers and mature fields with a view to encouraging investment and job creation….” Minister of Finance, page 26 of 2021 Budget Statement (https://www.finance.gov.tt/wp-content/uploads/2020/10/Budget-Statement-2021-1.pdf).
“Meaningful reform to the SPT regime will enhance the economic returns to all stakeholders; the T&T Government, Heritage, the supply chain and the people of T&T. Through such reforms, which are happening globally, incentivising increased activity and greater oil production will lead to maximising recovery from our reservoirs - which in turn will lead to enhanced employment opportunities and a step-change in potential cash generation levels and returns for operators.” Bruce Dingwall, October 7th 2020 (https://www.lse.co.uk/rns/TRIN/trinidad-and-tobago-budget-highlights-nik5avsc6sx323o.html).
“To incentivise new production, particularly new oil production we have decided in the first instance to adjust our Supplemental Petroleum Tax Regime to motivate oil companies to produce more oil.” Minister of Finance, page 10 of 2023 Budget Statement (https://www.finance.gov.tt/wp-content/uploads/2022/09/Budget-Statement-2023-E-Version.pdf).
“We believe that these reduced rates of for new oil production in the marine areas will allow companies to access the required financing to increase their drilling and get approval for new exploration and production programmes thus increasing the production of much needed oil… We are also looking at adjustment of other oil and gas taxes and other innovative fiscal incentives to encourage new investment in the sector.” Minister of Finance, page 45 of 2023 Budget Statement.
“This will encourage smaller oil producers and lease operators in small and mature marine oil fields to incentivise further their production.” Minister of Finance, page 49 of 2024 Budget Statement (https://www.finance.gov.tt/wp-content/uploads/2023/10/Budget-Statement-2024-for-web.pdf).
“…this particular measure is to encourage the small producers, the Trinity's, the Touchstone's”. The Energy Minister discussing the Finance Bill 2024 , which reduces marine SPT, in the House of Representatives on December 13th.
Ab76
Are you prepared to back up your statement that “The deal is that Trinity will invest that windfall in boosting production”?
There have been plenty of disappointments this year PipeDragger, the most obvious one being the fall in the share price from 120p on January 24th to just 41p today. However, there have been successes, including: (i) further tax reform that’s worth millions of dollars per year (as the the largest small producer in Trinidad, Trinity has been at the forefront of the campaign to amend the SPT regime and were expressly named by the Minister of Energy, along with Touchstone, as a beneficiary when the Finance Bill was debated in the House of Representatives last week); (ii) the award of a new licence on much more favourable terms than the existing sub-licences (there was competition for Buenos Ayres, but Trinity won and have to hand a smaller carried interest to the state oil company than Touchstone had to for their new licence - 15% versus 20%); (iii) the payment of their first ever dividend; (iv) a moderate share buy back; (v) cash generation at the top end or slightly above expectations ($12 million or slightly more); and (vi) an oil discovery (exploration is inherently risky and all too often new wells fail to find any resources, but despite Jacobin falling very short of what was hoped for Trinity have found oil and proved their geological model).
As for payments to the key management, in 2022 they were about a third lower than in 2021 ($1,185,000 v $1,669,000 - see page 110 of the Annual Report).
With regard to Galeota, the reserves are proven as a consequence of past exploration. Trintes has about 9.26mmbls of 2P reserves and Galeota has about 36.83mmbls of 2C reserves. Along with tax losses of $166 million (which can be used to offset 50% profit tax on $125.5 million of profit - so $62.25 million of tax), Galeota alone is worth multiples of the current share price.
Ab76
“although it should still eventually pay for itself; but it’ll be over several years”
Surely you realise that this is in fact highly unlikely? You really need to stop accepting everything that TRIN says as gospel. Has the last couple of years not taught you to take TRIN pronouncements with a very large pinch of salt?
Ab76
“The deal is that Trinity will invest that windfall in boosting production.”
Where did you read that TRIN was under any such obligation?
AB76, you are taking the dividend comment literally - I am just observing how poorly the company has made its investments. Trin share price has been in sustained decline because (1) the directors for years have rewarded themselves with options but not paid a dividend. This year we have had a modest dividend. (2) The other problem remains unresolved and that is production. They have been working for 7 years to break the 3000 bopd limit and nothing works. The previous 6-well programme was no more successful than the present single deep well. Then there is Galeota but who is going to pour in 10s of millions when Trin have not shown enough understanding of geology in smaller areas? Jacobin has emptied the piggy bank so unfortunately it is just another year ahead of waiting, waiting. Only short term chance of a proper return is the company gets bought out but I don't think the price would be amazing.
Spending $10 million on a dividend was never an option.
The government of Trinidad and Tobago has, through last year’s and this year’s reforms to the SPT, handed Trinity millions of extra dollars per year. The deal is that Trinity will invest that windfall in boosting production. If fresh drilling works out, both Trinity and the government win from the extra profit and tax revenues generated. If it doesn’t work out, the cost to Trinity is largely covered by the annual SPT saving.
Obviously Jacobin hasn’t been the success that was hoped for (although it should still eventually pay for itself; but it’ll be over several years, not the 12 months or less aimed for), but Trinity had to try. The government isn’t going to give up revenue just so that oil companies can pay large dividends.
Just think what a mega dividend we would all have if the 10+ million spent on Jacobin and share buy backs had been paid out instead. They could then top it off by selling the whole company.
Hindsight is a wonderful thing but really they need to think more carefully about how they spend the cash.
A lot of shareholder value has been destroyed and a lot of the potential that TRIN once had has evaporated. Not sure that folk really get that - I think they are kidding themselves about how profitable TRIN is going to be in the future. When the share price was in the 100s, the 200s or even 300s still seemed possible. After watching the BoD waste all that time and money over the last couple of years, I am now struggling to see how the share price will ever get back into three figures. I don’t think the executive directors deserve to still be there - I do not think they are the right people to unlock whatever potential TRIN has left. If they are going to hang around I will be taking the first decent exit that I’m offered.
Grim short term future. Maybe future some hope (maybe).
Interesting that Jezza stated 400bopd would make Jacobin a reasonable result.
I sold last week too. This share was a bit of punt, but has proven to be more of a dog of share than I had expected.
I stopped my trade here other week lost 40 pounds however if i held be nearly 700
Two dud zones, one left to try. It seems Trinity is not very expert at reading their own backyard geology. It follows from a series of dud wells last year. Watch your investments evaporate.
$8.3m spent and currently very little to show for it, our ship needs a new captain before we hit an iceberg
Bigger sells just before close of play. Looks like a duster and all this hype about a discovery was a bit premature. I fail to understand why the flow testing was not carried out straight after the drilling. They had years preparing for this.
If by some miracle it is commercial the RNS needs to be positively headed to draw in the punters and not just called operational update
This is far from exciting. The longer this drags on the more chances of a bad result or operational problems.
Time to sell out or farm out for a free carry.
One year ago there was an exciting 6 well drilling program ".. . a meaningful step-change in production is expected in 2023 when the horizontal and deep wells are expected to be on production. " .... Didn't really happen.
This year we are on a single well program, Jacobin. It is months behind and no production has lasted more than a few hours. I think our only chance of return on investment may be if the company is sold. Need that Jacobin result to create value for a buyer. (I am fed up averaging down)
Agreed about the downside, at least after the initial shock if it is bad news at LC1.
You're right Rossannan. I misread that part. Still leaves 227 feet of upper zone net oil pay left to test.
Its a punt, sure, but the thicker net pay of the upper zones should have much less risk of sands than the thinner net pay.
The enteprise valuation here is now about £10 million. I would say failure is mostly priced in by now, so the downside risk certainly over the medium term should I hope be minimal.
Marineclark
"Over 290 feet of net oil pay encountered in the Jacobin well"
I think you may have the wrong end of the stick.
The company has indeed stated that over 290 feet of net oil pay was encountered in the Jacobin well, but that was in total - only 63 feet of that net oil pay was encountered in the deeper exploration targets.
The shallower net pay has no transformational potential and while the deeper net pay could have this in theory, two of those three deeper zones have already failed. LC1 is the last chance saloon both for Jacobin and this BoD.
It is currently very hard to see where the balance of risk and reward lies at the current share price. Does its recent dip signify that someone knows something? Who knows?