RE: Video Conference announced6 May 2024 14:51
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.
Sign In
Follow the stocks
