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ADV imo has the worst UI so I cba posting there. That says a lot, considering how poor LSE is, all IMHO. I prefer discord though. Pretty tired of the lack of focus on ramping production here and the inevitable delay to the infamous wall of cash.
At least I have a nice chunk in both #PTAL and #VLE, both reporting tomorrow so that will likely improve my mood!
Sturm you've changed your tune a lot lately, lol? I actually wrote a response over on ADV to an earlier post of yours here, as couldnae find my password. Wouldn't it be funny if Galeota became the "new" Casca? Why don't you post over on ADV as well as here?
@Sturm. Get that you don't like the acquisition. I too hate the timing and the dilution to pay for it and I'd suggest that in the absence of a detailed explanation on the value to TXP versus the cost of dilution, and confirmation that the deal will actually go ahead, the market can't really decide how to take it. It seems like the institutional investors are not unsupportive otherwise I think you'd see a big well-off. As for your conclusions to support your dislike, they're quite a stretch. What would T&T govt benefit by forcing TXP to buy a failed business with no potential. If very much doubt they'd force them to do anything, but I could imagine them encouraging bidders to take on assets/licences so that their potential is developed to produce much needed hydrocarbons for the country rather than remain stuck in limbo due to no development cash. You may by chance be right, I hope you're wrong.
People who think this is a brilliant acquisition might want to read up on e.g. Valeura. Now there's a management who understands how to buy assets! > 10 x in two years and still cheap.
Horrible timing and all-share gift shop makes me wonder if they know the 2 new cascadura wells are dry (then we're all f..ked) or if T&T bureaucrats told them to eat the Trinity bullet or suffer from endless red tape....
When you buy a near-dead asset, share price isn't supposed to drop.... unless you've f.cked up.
Conclusion: The board f.cked up. Having a huge board makes them bored and they begin to get bad ideas and lose patience. They had one job: Bring cascadura to 200 mmcf, then throw a party and only then consider the size of the empire.
Many thanks again for such a in-depth response. I will be only too pleased to be proven wrong on my sp prediction, so long as the price is moving north and not south!
@aligator. The trajectory and timing of the SP movement is clearly linked to the success and pace of Cascadura production growth now (as the cashflow it generates fuels the flywheel of potentially value-adding activity), so it will depend if TXP bring forward the drilling of Cas 4 and/or 5 to this year or not, which I think they must now do instead of drilling at Coho. If they do, and they're successful we could still see £1 this year, or it may take until the reserves update in Q1 2025 when additional reserves at Cas and the acquired reserves from TRIN, as well as the significant increase in production rates at Cas should see a large increase to the size of the reserves and value (not just because of the size, but because the value of reserves increase if they can be extracted more quickly via a higher production rate). If they then drill all 4 wells at Cas B next year, which you would expect, and these wells bring another significant increase in production and cashflow (which should be the plan and very realistic) that really gets the momentum going on production, cashflow and the additional activities that funds in development and exploration drilling on Ortoire, hopefully Rio and TRIN's assets. The SP then becomes a factor of production and sentiment (from lots of newsflow). Assuming substantial progress at Cas (at least 8 good wells on production by y/e 2025) and some positive news on other activities which will be funded by the Cas cashflow I can still see £1.50 by the end of 2025 or by the reserves update in March 2026. However, really not easy to predict until we see how the market values the combined production and assets of TXP and TRIN when the deal completes and we get confidence on the Cascadura production growth profile. And there are curveballs that could add value more quickly, such as the JV/farm-out or sale of TRIN's offshore assets which are supposedly ripe for development, or the odd explo drill (such as Kokanee). SP short term driven by the lack of imminent confirmation of Casca production growth (i.e. Cas 2 and 3 online) and sentiment that is assuming that Cas production growth will not happen.
@holdandhope, Many thanks for the summary.
My take on this is that the deal appears to make long terms sense but its timing (acknowledging that there is never a right time), from a market perspective is too early, the point being that TXP still has much to do to prove its own reserves through production and cashflow. As you say, one of the questions is how quickly TXP can maximise not just its own production but that of Trinity as well and how quickly the tax losses can be value accretive.
At the bottom line, I still think this is an good buy at ca 38p but don't now see £1 or anywhere near Malcy's £2 this year or well into 2025, if not 2026.
I think the market doesn't know what to make of it. Certainly the shareholder debate I've seen supports this, with some positive, some negative and the rest unsure. Shareholders shocked at more dilution at such a low SP when it's hoped that with Cas 2 and 3 coming on production in Q3 that production, free cashflow, confidence in TXP's future growth potential and then the SP could increase substantially. It's difficult to value the upside as TXP can't spell it out too clearly (particularly how they can use the huge tax losses), but the estimated value of TRIN's assets if they had funding to develop them and benefit from the tax losses was multiples higher than the current equity based value of the acquisition. TXP should have the capital required. However, the further difficulty is in assessing how quickly can realise this value and whether the time to do so and scale of the value accretion justifies the dilution of TXP's value and seemingly likely shorter term significant upside. In my view, I think it holds back the shorter term potential of TXP, but could be very value accretive later in 2025 and on.
For a variety of reasons I have not had the time to research Trinity's asset base and worth but, based on the performance of TXP's sp, it is not being perceived as adding wealth. I note the comments of other posters but would appreciate a summary from the technical professionals among our shareholders. Simply put, is the value accretion or value diminution?
No problem treacle .
Do we think we're Spud cass 4 anytime soon
Give it a rest.
Hope some of you took the advice 2nd May. Why we wait
The immediate development on the horizon for Trinity is production from its Jacobin well (due this month). Since discuss of Jacobin has been spread over many RNSs, here are extracts from three that are key to this new production:
“The Jacobin well has now completed two of three planned sections and has successfully intersected the Forest and Upper Cruse secondary targets encountering good quality oil-bearing reservoirs. An intermediate logging programme has been completed and initial analysis shows good quality reservoirs and pay zones which have exceeded pre-drill estimates.” https://www.lse.co.uk/rns/TRIN/jacobin-drilling-update-oefs0o22ntf8erq.html
“Further to the announcement on 26 June 2023 when Trinity announced the Jacobin well has successfully intersected the Forest and Upper Cruse secondary targets, further analysis has confirmed that the total net hydrocarbon pay across these targets is 228ft.” https://www.lse.co.uk/rns/TRIN/jacobin-drilling-update-atdu45ux2j18934.html
“The forward plan for Jacobin, which has been submitted to Heritage Petroleum Company Limited and the Ministry of Energy and Energy Industries for approval, is to recomplete the Jacobin well up-hole in the Lower Forest horizon with production expected in the second half of May 2024.” https://www.lse.co.uk/rns/TRIN/q1-2024-operational-update-1l0aa1srgo2so7m.html
At current production rates, Trinity has enough 2P reserves for 12 years (about the same as Touchstone). That production is bringing in $10 to $12 million per year in cash flow; a figure that could easily increase by $1 to $2 million once Trinity’s overheads are removed (consider just the costs of running a listed company).
2C reserves are enormously important as after production an energy company’s priority is to find new resources to produce in the future. Trinity spend a fortune exploring for oil in Galeota (probably over $100 million) and found plenty there. With a viable plan to exploit it, Galeota oil will be worth a fortune (total oil in place is thought to be over 800 million barrels and there’s still some more exploration to do), Trinity tried to pursue a very capital extensive plan, but were advised to pursue a smaller, piecemeal plan that would, after $30 million of initial expenditure, fund itself.
Buenos Ayres, the new onshore licence, accounts for no reserves, but is thought to contain millions of barrels of oil (watch the presentation from last June - it has the potential to double, triple, quadruple onshore reserves). There’s been very little drilling on Buenos Ayres (which has the downside of increasing the cost; if you look at Google Maps you’ll see it’s mostly forest and so roads/infrastructure will be required - note though that it borders one of Trinity’s existing licences, so at first existing infrastructure can be extended a short distance) as its potential hasn’t previously been realised, but new seismic has changed that.
Quite apart from oil, by the time the deal completes Trinity will have about $10 million in cash (how many shares would Touchstone have needed to issue to get that much cash?). Whilst it’s true that Trinity has a $4 million overdraft, it’s owed $5 million in VAT refunds by the government and runs the overdraft to cover those VAT refunds. There’s no doubt they’ll receive the VAT refund and so the overdraft will take care of itself.
Perhaps even more importantly, Touchstone will get its hands on Trinity’s $225 million or so of tax losses (which might even increase this year as a consequence of Trinity’s reserve write down last month). The reason Cavendish recently cut its valuation of Trinity from 206p to 76p was because it didn’t thing it would be able to take advantage of those tax losses due to a lack of funds to expand the business (with funding, it increased its valuation to 346p). The combined group should be able to benefit from them.
One particularly thing to keep an eye on is the Jacobin well, which by the end of the month should finally start producing something meaningful. Although it’s failed to produce from the deep levels it was targeting, it went through the prolific Forest level (where Trinity found much more oil than expected) and will soon start producing from there. That could easily add 100 to 150bopd to production.
Trinity doesn't have much 2P. I don't give a flying f... about 2c in this case - everybody and their mom knows that TXP ressources on the other hand will grow a lot this year. TXP could/should be rated 3+ times higher from the 2 wells that are drilled but waiting to be tested. Trin is going nowhere. So why is this an interesting trade now? TXP is basically paying 3 times (from underrated SP) for a company that can't grow and has problematic fields? Timing is bad - and they've wasted management ressources on the wrong thing again. Give it half a year and it wouldn't be 1:1.5 but 1:0.25. That tax asset isn't going anywhere.
The oakbloke and others note the tax losses alone will deliver an extra $60million in free cash. Compelling case just on its own. Extra largely unexplored acreage onshore and offshore…
Can see why PB likes the deal.
The thing is Trin shareholders are getting really undervalued shares. That's why the transaction makes sense to them. They aren't losing any upside by selling because they'll still own great assets that can actually utilize their tax loss.
199 million as of q2 2023. I like the acquisition. Only wish we could pay in cash and not valuable shares but as someone else wrote; if they can take advantage of the tax shield, this is a case where 1+1= 4.
Luckily this merger is not one where the Trinity incumbents get to call the shots, clearly Touchstone is the one calling the shots, they have made it clear they see big opportunities for synergies (so removing duplication of non-execs and consultants). Touchstone with about an 80% success rate on drill tests seems to have this sorted and the business is cash flow positive and in most cases seems well run, the excesses that may have been in place at Trinity will be address and the benefits to both sets of shareholders will be additive and benefit both...
1. Top heavy Trin execs and board disappear at closing. Cost savings there.
2. Jacobin failure is fully factored in to lowish price TXP is paying for Trin. TXP will be doing all capital allocation going forward.
3. Financial hedges will largely roll off before closing. TXP will be making all hedging decisions going forward.
4. Cyber threats are ubiquitous. Trin computer systems will disappear as Trin operation is consolidated with TXP, reducing cost and vulnerability, if TXP systems are in fact more secure.
This won't close for 6-9 months. TXP needed the cash available for 2024 capital program.
I’m not sure Touchstone made the right decision in making an offer, or at least I believe they may have overpaid for TRIN.
1) Top heavy with Execs and non-execs – they appear to be quite top heavy with a lot of foreigners both at the executive and non-executive level all of whom are probably calling quite high salaries with no results to show. Why have they brought in all these foreigners I’m seeing on their site? Sure these people may have worked well in foreign geographical regions but they wouldn’t have a clue about the local subsurface developments or what’s required.
2) Jacobin Failure –
a. Surely, they should have put a cap on how much to spend on Jacobin instead of letting the costs run to $8 mln USD. These funds could have been used to maybe maintain current infrastructure instead. How did the petroleum and geological teams get the initial expected production so wrong for Jacobin? Yes it was a much greater depth than they tested before but there’s enough data on T&T and enough surrounding prior well developments to make proper gauges of what realistically they could have gotten out of a highly matured oil field. I think they got too greedy and expected to pull a miracle well.
3) Financial Hedges –
a. The hedging they had implemented for 2022 was absolutely crazy. My fear is they got too greedy again and didn’t consider the potential for prices to exceed what they became at the time. But they should have gauged their exposure better. They already knew before that what their exposure would look like, there’s no way they don’t have some sort of financial knowledge to test the limits of what they would have given up prior to the execution of the instruments. They know they aren’t a huge company that can offset such losses. Any little upside is what would have put TRIN in a much better position.
4) Cyber-attack
a. I’d genuinely worry about what the hackers could have gotten from the company at that point in time. Any additional access logs to data or software that may be corrupted and then transferred to Touchstone. Provided all of TRIN’s past failings in I wouldn’t expect much from their IT analysts and teams either.
Just trying to catch up on what’s been happening, maybe extended loan is just a security blanket incase Trin doesn’t go ahead.
When do Trin SH have to vote?
Sssshhhhhh we want this deal to go through .
Why did we go for the extended loan facility if we knew of this deal with all Trins cash ???