Member Info for ab76

Has anyone noticed that Malcy is producing his blog from Trinidad next week (see https://www.malcysblog.com/2024/10/oil-price-union-jack-europa-rockhopper-and-finally/)? I wonder why he’s going there? I suppose it could be to meet the people at Predator, but perhaps not a coincidence that he’s going soon after Touchstone was due to link up the new wells?

Trinidad’s budget was announced on Monday.

Although no specified changes to oil and gas taxation were announced, the Finance Minister said: “Accordingly, together with the Minister of Energy and Energy Industries, I will be meeting with the Energy Chamber within the next 3 months, to discuss what can be done, within reason, to stimulate further exploration and production, so that appropriate adjustments can be made to the oil and gas taxation regime in the first quarter of 2025, through a Finance Bill.” (See page 178 of https://www.finance.gov.tt/wp-content/uploads/2024/09/Budget-Statement-2025-FINAL.pdf)

The Energy Chamber’s response is available at https://energynow.tt/blog/the-energy-chamber-welcomes-consultation-on-fiscal-regime-for-the-upstream-sector

Touchstone’s solicitors are threatening the givers of the irrevocable undertakings with legal action on the basis that they appear to have breached them by frustrating its deal - see https://www.touchstoneexploration.com/wp-content/uploads/2024/08/Sample-shareholder-letter-2-09.08.24.pdf. It’s an excellent step by Touchstone. Trinity’s behaviour has been wholly unacceptable. If you make a promise you keep it.

It’s an excellent step by Touchstone. The behaviour of Trinity’s large shareholders and directors has been wholly unacceptable (I have a significant investment in Trinity). They freely promised to support Touchstone’s offer and are now trying to break their promises. That’s not how you conduct business. I expected better of them.

Goodbye Thunder, I’ve filtered you.

I don’t think you’re interested in discussing things Thunder2040.

Two offers have been made for Trinity. The first, from Touchstone, was voted on and approved by 99% of voting shareholders. It’s an all share offer. It doesn’t value Trinity very highly, but we’ll own shares in the company that benefits from the cheap acquisition and will benefit that way. This offer has been approved by regulators.

The second offer comes from LO and is in cash. Today it’s more valuable than Touchstone’s offer, but we don’t get to share in the benefits of the cheap acquisition. It hasn’t been voted on by shareholders and probably can’t be until at least next year due to the irrevocable undertakings. It hasn’t been approved by the regulators yet and as Trinity warn, in bold, on page 4 of the offer document it might not be given. I’ve set out reasons why I think there may be regulatory problems; they’re not rumours but rather an opinion on the known facts (LO appear to be planning to use Trinity’s cash flow to fund the acquisition and that makes funding exploration difficult).

I’ve set out in clear terms why I prefer the Touchstone deal. You might prefer the LO deal, in which case vote for it. I won’t be. I didn’t negotiate the deal with Touchstone and so didn’t have any input into the offer price. However, they made an offer and shareholders accepted it. That’s how deal making works.

Here are two questions that shareholders should be asking Trinity’s directors:

1. As part of their recommendation that we accept Touchstone's offer, the directors provided us with a valuation report asserting that Touchstone's reserves, after tax and a 20% discount factor, are worth between $235 million and $311 million (that's between 78p and 104p per share - and allows nothing for new discoveries, cost savings following the merger and any benefits from Trinity's tax losses). What's changed since May? The report is available at https://trinityexploration.com/wp-content/uploads/2024/05/Valuation-Report.pdf

2. On April 15th 2024, Cavendish provided their most recent valuation of Trinity's assets. Following the surprising disappearance of 25% of our reserves they slashed their net asset

valuation of Trinity from 202p to 76p per share. However, with the benefit of funding to develop Trinity's assets and utilise the tax losses, they value the business at 347p per share. Given that Trinity has a significant cash pile and cash flow from existing, stable production, why do they propose to sell our company at a 10% discount to its minimum value and an 80% discount to its potential value?

Within a week of the Touchstone deal being announced in May, Stuart Young met with Trinity’s executives and indicated his approval for the deal (see https://newsday.co.tt/2024/05/10/young-meets-with-shell-tt-trinity-executives/ ). He stated at the time that “he looks forward to a successful conclusion of the transaction and hopes the arrangement would result in the increased exploration and production of hydrocarbons.”

Since being appointed Energy Minister in 2021, the Minister has successfully introduced significant tax reforms that have boosted Trinity’s free cash by millions of dollars per year. Those tax reforms were introduced on the basis that they would encourage fresh investment in the energy sector and boost national production, and the Minister’s reputation depends upon whether he can deliver that increase in production.

Trinity, which has a significant cash pile, put itself up for sale because it cannot raise the funding it needs to unlock it significant assets (Cavendish values Trinity at 347p per share if it fund its significant assets - the company has large tax losses, but obviously profits need to be generated in order to utilise them). Touchstone provides a solution to that funding issue.

It’s questionable whether Lease Operators does. LO proposes to fund its acquisition via a $33 million loan with an interest rate of 9.35% and repayable within 5 years. Over the next 12 months interest and repayments (assuming that 20% of the loan is paid back each year) will be in region of $9 million. That’s roughly equivalent to Trinity’s free cash flow. Where will the money for investment come from? How will the government feel about its tax reforms being used to fund acquisition debt? Without evidence that LO has the funds to boost production, why should the government issue the necessary approvals? Trinity previously tried to sell its West Coast assets (a tiny part of its business) to Range Resources for $4.5 million. The deal fell through because the government wasn’t satisfied with the purchaser and refused to give approval. I’m concerned that the absence of money for investment may well cause regulatory problems; problems that Trinity failed to address in last week’s offer document. It’s notable that the Energy Minister said nothing about the LO deal.

It’s also worth asking why LO’s asset swap with Touchstone, which was announced in January 2023, still hasn’t received regulatory approval. Touchstone didn’t have any difficulty quickly obtaining approvals for the Trinity deal, which raises the possibility that the regulatory delay concerns LO.

The proposed sale of Trinity to Lease Operators is at a 25% discount to its net assets.

The proposed sale of Trinity to Lease Operators is worth about 20% of the valuation provided by Cavendish if funding is made available to develop its assets and about 20% of the valuation it had been attributing to the company for many years (approximately 335p per share).

I’ve owned my shares in Trinity for almost 5 years and am sitting on a significant loss. I still believe in the value of Trinity’s assets and don’t want to see them sold off cheaply to a company I can’t invest in. Although they’re being sold cheaply to Touchstone, at least I’ll benefit from that by becoming a Touchstone shareholder. I’ll benefit from the fact that Touchstone’s assets currently have a low valuation and from the significant costs savings that will be made from merging two complimentary production businesses. The Touchstone deal seems to me the best way to make my investment back and I continue to support it.

I also find Trinity’s conduct distasteful. An agreement was made and should be stuck to. Reneging on a deal a couple of weeks before it was due to go through in breach of freely given irrevocable undertakings is deplorable and no way to run a business.

There’s still no need for the rudeness Thunder.

Over the weekend I set out why it seemed to me that the irrevocable undertakings were binding.

This morning Touchstone confirmed that to be the case.

The mess and confusion has been caused by Trinity’s foolish decision to publish an offer document on Friday calling for a vote that they must have known couldn’t be won.

To make matters worse, I’m concerned that they haven’t considered the regulatory obstacles that LO’s bid may face. LO’s putting up just $2 million in cash and borrowing the rest. The government, which must approve the takeover, is bound to be concerned about this.

It also concerns me that our directors are recommending that Trinity be sold at a 25% discount to its net assets. Obviously the sale to Touchstone is also at a discount to net assets, but since it’s an all share takeover we’ll still own Trinity’s assets and can benefit through Touchstone from the discount.

As I’ve posted many times, I wish to continue to own Trinity’s assets. I also wish to benefit from the cost savings that will be generated following to takeover and to benefit from owning Touchstone’s assets.

Quite apart from the likely determinative nature of the undertakings, the Touchstone deal appeals to me a great deal more than the possibility of cash in 3 months or so. That’s why I support it. I know other shareholder do and I suspect that Touchstone is close to having at least 50% support.

Rather than delay the Touchstone takeover any further, it should proceed forthwith so that we can start to reap the rewards; rewards which I hope will soon be reflected in a much higher share price.

And how do you get to either of those stages Thunder when nearly 40% of shareholders are bound to vote against those things happening?

The undertakings will only cease to be binging now if Touchstone chooses to walk away.

Unfortunately, Trinity’s behaviour over the past couple of weeks provides an insight into the mistakes and failures that have occurred over the past three years: putting out a document recommending that shareholders vote for a deal that can’t succeed, but which comes at considerable cost for shareholders (we paid for the 40 page document and we’ll pay for the vote - I’d guess the bill is well into 6 figures) , doesn’t provide any confidence that they were better equipped to deal with, for example, decisions on Jacobin expenditure as it spiralled 2.5 times over budget.

Touchstone has the right to switch from a scheme of arrangement to an offer. If it switches to an offer, the existing undertakings, which are available to read on Trinity’s website, compel the directors and relevant shareholders to accept the offer with their shares. Given that, despite a vote overwhelmingly in favour of the scheme of arrangement, the directors have postponed indefinitely the court hearing I suspect Touchstone will shortly switch to an offer. LO will then follow and shareholders will decide which offer they prefer, with the winner likely being whichever party secures half the shares first.

You might not like the irrevocable undertakings Thunder2040, but they exist and cannot be ignored.

Yesterday, Trinity’s directors acknowledged that they can’t vote in favour of the LO deal (indeed they have to vote against with their shares).

Yesterday, Trinity’s directors acknowledged that they can’t recommend that all shareholders vote in favour of the LO deal (those shareholder who gave undertakings must vote against).

Yesterday, Trinity’s directors couldn’t state, in a detailed 40 page document, that the irrevocable undertakings had lapsed or were no longer applicable (they didn’t mention them directly at all).

I think Trinity’s well aware that the irrevocable undertakings still bind. It seems to me apparent from the different wording used when recommending the Touchstone and then the LO offers.

When Touchstone’s offer was announced, the directors wrote: “Accordingly, the Trinity Directors intend to recommend unanimously that Trinity Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting as those Trinity Directors who hold Trinity Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 464,463 Trinity Shares representing, in aggregate, approximately 1.2 per cent. of the ordinary share capital of Trinity in issue on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to this announcement” - see page 2 of hTTps://trinityexploration.com/wp-content/uploads/2024/05/Rule-2-7-Announcement.pdf under the heading offer.

Yesterday, when recommending LO’s offer, the directors were only able to write, “Accordingly, the Trinity Directors intend to unanimously recommend that eligible Trinity Shareholders vote in favour of the Scheme at the Court Meeting and in favour of the Resolution to be proposed at the General Meeting or, subject to the consent of the Panel, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure the acceptance of such Takeover Offer” (page 2 of

hTTps://trinityexploration.com/wp-content/uploads/2024/08/Rule-2.7-Announcement-lease-ops.pdf under the heading recommendation).

Why are Trinity’s directors unable to vote for the LO deal? Why are they unable to urge all shareholders, as opposed to just “eligible shareholders”, to vote for the deal? I think because the irrevocable undertakings still apply.

If the irrevocable undertakings don’t apply, they’re fairly worthless documents. I don’t think that’s very likely.

There’s no need for insults Thunder2040.

My interest in Trinity has been publicly disclosed and is significant.

My preference remains the Touchstone deal as I wish to continue to own Trinity’s assets, to benefit from the cost savings and to benefit from Touchstone’s assets.

There are two competing bids for Trinity and shareholders will have to decide which succeeds. However, I think Touchstone has a large head start due to the irrevocable undertakings.

I expect things will soon be clearer, but they don’t just fall away. There’s a big clue in the different wording used by Trinity in the respective offer documents.

When Touchstone’s offer was announced, the directors wrote: “Accordingly, the Trinity Directors intend to recommend unanimously that Trinity Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting as those Trinity Directors who hold Trinity Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 464,463 Trinity Shares representing, in aggregate, approximately 1.2 per cent. of the ordinary share capital of Trinity in issue on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to this announcement” - see page 2 of hTTps://trinityexploration.com/wp-content/uploads/2024/05/Rule-2-7-Announcement.pdf under the heading offer.

Yesterday, when recommending LO’s offer, the directors were only able to write, “Accordingly, the Trinity Directors intend to unanimously recommend that eligible Trinity Shareholders vote in favour of the Scheme at the Court Meeting and in favour of the Resolution to be proposed at the General Meeting or, subject to the consent of the Panel, in the event that the Acquisition is implemented by way of a Takeover Offer, to accept or procure the acceptance of such Takeover Offer” (page 2 of

hTTps://trinityexploration.com/wp-content/uploads/2024/08/Rule-2.7-Announcement-lease-ops.pdf under the heading recommendation).

Why are Trinity’s directors unable to vote for the LO deal? Why are they unable to urge all shareholders, as opposed to just “eligible shareholders”, to vote for the deal? I think because the irrevocable undertakings still apply.

If the irrevocable undertakings don’t apply, they’re fairly worthless documents. I don’t think that’s very likely.

Back when Touchstone’s offer was first announced, the directors and most of the largest shareholders gave irrevocable undertakings that they would vote in favour of Touchstone’s acquisition. Together they amount to 38.9% of the issued shares and for the reasons that follow I think they still apply:

1. The Court Meeting and General Meeting for the Touchstone acquisition took place on June 24th 2024. Here is the RNS announcing the outcome: hTTps://polaris.brighterir.com/public/trinity_exploration/news/rns/story/xqdjj7w (note the heading is “Results of Court Meeting and General Meeting”).

2. Most of the large shareholders gave irrevocable undertakings to Touchstone to support its takeover. Copies of the undertakings are available on Trinity’s website. Angus Winther’s is available at hTTps://trinityexploration.com/wp-content/uploads/2024/05/Irrevocable-Undertaking-Angus-Winther-1.pdf

3. The undertaking sets out the terms under which it may lapse. Paragraph 7.2(d), on page 6, provides that it will lapse if “any person other than the Offeror [ie, Touchstone]… announces a Competing Cash Offer or a Higher Competing Offer prior to the date of the Court Meeting and the General Meeting convened in relation to the Scheme”.

4. Lease Operators have announced a competing cash offer. However, it was announced six weeks after the date of the Court Meeting and General Meeting. Since it was not prior to those meetings, it is not now a ground capable of causing the undertaking to lapse.

5. The undertaking requires the giver to vote in favour of the resolutions required to implement Touchstone’s takeover - see paragraph 1.1(a)(i).

6. However, the undertaking also requires the giver to vote “against any resolutions… to be proposed at a General Meeting or Court Meeting which (if passed) might result in any condition of the Acquisition not being fulfilled or which might delay, impede or frustrate the Acquisition in any way (including without any limitation any resolution to implement, or which could assist in the implementation of, a competing offer for the Company by any third party)” - see paragraph 1.1(a)(ii).

7. In light of the above it appears to me that: (i) the irrevocable undertakings remain in place; and (ii) compel those who gave them to vote against Lease Operator’s bid.

8. Touchstone’s acquisition has been progressing as a scheme of arrangement, but they have the right to switch to an offer. I suspect they will now exercise that right and see whether they get to 50.01% acceptances before Lease Operators. Since the undertakings require the givers to accept any offer by Touchstone (see section 8 of the undertaking), they already have nearly 40%. Whoever gets to 50.01% first will likely succeed as the other party will then drop out, which in Touchstone’s case would terminate the undertakings.

9. Things will be clearer on Monday morning, when I expect an announcement from Touchstone.

Back when Touchstone’s offer was first announced, the directors and most of the largest shareholders gave irrevocable undertakings that they would vote in favour of Touchstone’s acquisition. Together they amount to 38.9% of the issued shares and for the reasons that follow I think they still apply:

1. The Court Meeting and General Meeting for the Touchstone acquisition took place on June 24th 2024. Here is the RNS announcing the outcome: hTTps://polaris.brighterir.com/public/trinity_exploration/news/rns/story/xqdjj7w (note the heading is “Results of Court Meeting and General Meeting”).

2. Most of the large shareholders gave irrevocable undertakings to Touchstone to support its takeover. Copies of the undertakings are available on Trinity’s website. Angus Winther’s is available at hTTps://trinityexploration.com/wp-content/uploads/2024/05/Irrevocable-Undertaking-Angus-Winther-1.pdf

3. The undertaking sets out the terms under which it may lapse. Paragraph 7.2(d), on page 6, provides that it will lapse if “any person other than the Offeror [ie, Touchstone]… announces a Competing Cash Offer or a Higher Competing Offer prior to the date of the Court Meeting and the General Meeting convened in relation to the Scheme”.

4. Lease Operators have announced a competing cash offer. However, it was announced six weeks after the date of the Court Meeting and General Meeting. Since it was not prior to those meetings, it is not now a ground capable of causing the undertaking to lapse.

5. The undertaking requires the giver to vote in favour of the resolutions required to implement Touchstone’s takeover - see paragraph 1.1(a)(i).

6. However, the undertaking also requires the giver to vote “against any resolutions… to be proposed at a General Meeting or Court Meeting which (if passed) might result in any condition of the Acquisition not being fulfilled or which might delay, impede or frustrate the Acquisition in any way (including without any limitation any resolution to implement, or which could assist in the implementation of, a competing offer for the Company by any third party)” - see paragraph 1.1(a)(ii).

7. In light of the above it appears to me that: (i) the irrevocable undertakings remain in place; and (ii) compel those who gave them to vote against Lease Operator’s bid.

8. Touchstone’s acquisition has been progressing as a scheme of arrangement, but they have the right to switch to an offer. I suspect they will now exercise that right and see whether they get to 50.01% acceptances before Lease Operators. Since the undertakings require the givers to accept any offer by Touchstone (see section 8 of the undertaking), they already have nearly 40%. Whoever gets to 50.01% first will likely succeed as the other party will then drop out, which in Touchstone’s case would terminate the undertakings.

9. Things will be clearer on Monday morning, when I expect an announcement from Touchstone.

Three years ago, when Nick Clayton and Jeremy Bridglalsingh were appointed to their current positions, the share price was 165p.

Having destroyed so much shareholder value after the past 3 years, they’ve now sold the company for 68.05p cash (if you want to wait another 3 months): https://www.londonstockexchange.com/news-article/market-news/offer-for-trinity-exploration-production-plc/16599415

The Touchstone offer allowed us to keep partial hold of our assets, benefit from the combined savings and benefit from Touchstone’s assets. It was our best chance of making our money back, but Trinity’s management have taken that opportunity away: their final disastrous decision for shareholders.

It perhaps won’t make a huge difference either way, but Trinity’s Q2 production update is due at some point over the next couple of weeks. Such updates usually provide production amounts (are they getting anything out of Jacobin?), costs and cash.

“The flowlines to connect the newly drilled wells at Cascadura C to the Cascadura facility are now strung out along the right of way and welding of the line is underway” - https://x.com/TouchstoneExp