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Hi Spell...I don't check in here so apologies for prompted delayed response.
Yes I was at the meeting. I thought the presentation was very good, my thoughts summarized by a series of questions and answers:
Who wants to buy TRIN shares?
TRIN occupies a strange position. By virtue of what the market expects of small cap AIM oil stocks (a good deal of fizz repetitively shaken by the marketing arm / CEO) TRIN falls short of expectations...why?
The management does not play to their “natural” audience: they don’t spin it, they deliver on what they announce, they announce infrequently, they don't feel any compulsion to RNS to fill a void, they work to their own meter and they have high levels of obvious integrity that means they announce things that are uncomfortable (as evidenced with the receivables issue last year…TRIN announces, others don’t)...
They view themselves as a manufacturing business: production, costs and predictability please.
This does not appeal to your AIM gambler looking for the proverbial 5 bagger.
What about to the institution? They have a robust balance sheet, have come out of a period of near extinction (though this memory deserves to have completely faded), are solid as a rock, are on AIM and are TOO small for many institutions.
This means there are woefully few RNS announcing >3% stakes in the business.
As evidenced in the share price…the shares are unloved. There is no demonstrable reason why the shares should be where they are but an appreciation of the above “falling between the cracks” partially explains the current dislocation.
What will move the needle in the next two years?
SPT overhaul, Heritage activity (partnering, designations etc), East Coast Asset exploitation (sale or otherwise), traction with (new to Trinidad) onshore drilling techniques, possible clever hedging & the oil price leading to increased drilling and increased revenues.
What might move the needle negatively in the next two years?
All of the above round the other way plus the universality of field decline rates, and sitting in the “SPT throttle zone” on WTI.
What about SPT? YAWN…No obvious line on the horizon here…10% of the govt take home tax revs is SPT. How does the current government who just took away a load of jobs at Petrotrin turn round next and announce a perk to the Private Oil industry while also announcing a reduction in tax receipts? Answer, they don’t…not until a good amount of time has passed to allow these events to be viewed in isolation. As oil creeps higher, the critical urgency to overhaul diminishes. The only way I think this gets overhauled sooner is if Heritage looks compromised or the Producers start to REALLY suffer and that would require WTI to sit at $55 for a meaningful length of time. Hint, watch the election next year closely for a party change.
Hi Spell,
I am going.
Gabriel
Shorts starting to close out...late reporting
https://www.youtube.com/watch?v=cUcjowAF1KQ&feature=youtu.be
https://newsday.co.tt/2018/11/23/shell-exxon-bought-petrotrin-crude/
“I am pleased to announce to date three spot sales have been awarded.”
He said one sale was to Trafigura, an international trader, the other to Exxon Mobil Sales and Supplies and third to Shell “each with the most competitive bid on the three occasions thereby providing an indication of the market value of the much maligned Petrotrin crude.” He added the price they got was above West Texas Intermediate (WTI), a benchmark in oil pricing.
Khan said all three cargoes have been shipped and bids have been invited for the delivery of two cargoes in December.
“So the plan is working well.”
Mark asked what was the price of the WTI this country was able to fetch and Khan replied it was WTI plus two dollars.
“You can check the reference price. That price is referenced every day on the international market.”
The price of WTI on Wednesday was US $54.72 per barrel.
Mark then asked what was the total value of the oil exported for the period. Khan said the package size based on the tanker size was approximately 500,000 barrels and take that and multiply by the reference price quoted.
“That is supposed to be very good and palatable news to the people of TT.”
“I am pleased to announce to date three spot sales have been awarded.”
He said one sale was to Trafigura, an international trader, the other to Exxon Mobil Sales and Supplies and third to Shell “each with the most competitive bid on the three occasions thereby providing an indication of the market value of the much maligned Petrotrin crude.” He added the price they got was above West Texas Intermediate (WTI), a benchmark in oil pricing.
Khan said all three cargoes have been shipped and bids have been invited for the delivery of two cargoes in December.
“So the plan is working well.”
Mark asked what was the price of the WTI this country was able to fetch and Khan replied it was WTI plus two dollars.
“You can check the reference price. That price is referenced every day on the international market.”
The price of WTI on Wednesday was US $54.72 per barrel.
Mark then asked what was the total value of the oil exported for the period. Khan said the package size based on the tanker size was approximately 500,000 barrels and take that and multiply by the reference price quoted.
“That is supposed to be very good and palatable news to the people of TT.”
https://newsday.co.tt/2018/11/23/shell-exxon-bought-petrotrin-crude/
Thanks
https://twitter.com/wwwnewscott/status/1065271880289083393?s=12
Remember the oil price never stays still for long...
11.74 to buy earlier = ~£44 mln mkt cap
Less the cash...nice entry point
Also, when does the company invoke its own rule from the last AGM...quiz for anyone who remembers what it was?
GO
David,
I think this is solid thinking...have been wondering similar, more about pricing.
High level: with SPT I don't think that increased production is a leading item on the list of fears in Trinidad right now...
The current gov't has set forth that it wants to increase production but with current uncertainty around SPT and oil purchase prices investors are not feeling very encouraged.
At the moment oil companies in Trinidad with less than solid balance sheets must be very nervous. If oil settles in this zone then these companies will be freezing increasing production (what choice will they have?)
it may well be the purchase price right now has fallen below the SPT threshold but it is calculated quarterly so the Trin oilers just have limited visibility which means they will have to err on the side of caution.
Consequently, they will be encountering ongoing maintenance costs and declines that are unavoidable, made painful by the Step tax at 50.01...declines = falling output from trinidad (circa 7000 barrels per day per year)...hence not worried about the increasing production any time soon.
We have talked ad nauseam about the SPT...if i was the incoming CEO of Heritage I would be wondering WTF is this tax all about and why I have been employed to raise oil output if it is not going to get overhauled?!?
The economics don't stack up...this extra tax robs companies of vital money to A drill, B Maintain flows & C possibly give something back to shareholders.
The petroleum tax regime in Trinidad is so impossibly short sighted and so thoroughly opposed to increasing production that something has to shift...Right off against the above or increase base royalties...just address the issue.
Certainly there is a lot to be hopeful about as the wait and see approach of Imbert is looking borderline disastrous right now (accelerating dwindling production and threats to more jobs) and how long will it be before it starts to look politically iffy to have not taken the advice of significant global voices that you paid to advise you...
We shall see - but I am hopeful.
BTW I remain of the view that Trinity management has done very well in 2018 and that 2019 will be a solid year. If the framework can change for the 11% oil side of the Trinidad energy output then the country might just start to see tax revenues increase this way...here is hoping to a politician prepared to think longer term
Greetings from the TRIN board...I posted this on the TRIN board but I am posting it here also because it is so pertinent:
There is an article out reporting that Trinidad is selling oil $3 better than WTI...this might have more to do with global demand than anything else.
It will be interesting to see whether the POO that we all receive is fair, as things stand...
it looks like:
10% rule of thumb Discount to WTI (20% to Brent)
Royalties
ORR (combined 30%)
Other taxes and levies
SPT (22-30%)
Anyone want to bid (as in lump out actual cash for the privilege of the above?!) in the "exciting" new shallow water auction early next year?
The fiscal regime in Trinidad cannot go on relying on the patience of shareholders and needs to change.
IMHO Trinidad needs to make drilling CAPEX allowable 100% against SPT (rather than ~20%).
This would stimulate companies to grow supply which the Country wants and needs, is profoundly simple to implement, allows companies to plan around a step tax where they have an incentive to drill when oil is high & can be defensive when oil is low...and is a strong step towards a system that stops fraying the nerves of the whole oil industry in Trinidad (including Petrotrin).
Everyone has to pay tax (don't i know it!) but not everyone has to own shares in companies that are taxed so absurdly...which is why there is current weakness in the Trinidad Oiler share price while oil is actually pretty strong.
GO and dust off the recommended plans Colm...
If you agree - ping your management voicing how F*cked the system is
Greetinggs from the TRIN board...I posted this on TRIN board but I am posting it here also because it is so pertinent:
There is an article out reporting that Trinidad is selling oil $3 better than WTI...this might have more to do with global demand than anything else.
It will be interesting to see whether the POO that we all receive is fair, as things stand...
it looks like:
10% rule of thumb Discount to WTI (20% to Brent)
Royalties
ORR (combined 30%)
Other taxes and levies
SPT (22-30%)
Anyone want to bid (as in lump out actual cash for the privilege of the above?!) in the "exciting" new shallow water auction early next year?
The fiscal regime in Trinidad cannot go on relying on the patience of shareholders and needs to change.
IMHO Trinidad needs to make drilling CAPEX allowable 100% against SPT (rather than ~20%).
This stimulates companies to grow supply which the Country wants and needs, is profoundly simple to implement, allows companies to plan around a step tax where they have an incentive to drill when oil is high & can be defensive when oil is low...and is a strong step towards a system that stops fraying the nerves of the whole oil industry in Trinidad (including Petrotrin).
Everyone has to pay tax (don't i know it!) but not everyone has to own shares in companies that are taxed so absurdly...which is why there is current weakness in the Trinidad Oiler share price while oil is actually pretty strong.
GO and dust off the recommended plans Colm...
If you agree - ping your management voicing how F*cked the system is
will be interesting to see whether that feeds through to the pricing Trinity receives...
at the moment it looks like:
10% rule of thumb Discount to WTI
Royalties
ORR
Other taxes and levies
SPT
Anyone want to bid (as in lump out actual cash for the privilege of the above?!) in the "exciting" new shallow water auction?
The fiscal regime in Trinidad cannot go on relying on the patience of shareholders and needs to change.
IMHO Trinidad needs to make drilling CAPEX allowable 100% against SPT (rather than ~20%). This stimulates companies to grow supply which the Country wants and needs, is profoundly simple ti implement, allows companies to plan around a step tax where they have an incentive to drill when oil is high & can be defensive when oil is low...and is a strong step towards a system that stops fraying the nerves of the whole oil industry in Trinidad (including Petrotrin).
Everyone has to pay tax (don't i know it!) but not everyone has to own shares in companies that are taxed so absurdly...which is why there is current weakness in the share price while oil is actually pretty strong.
GO and dust off the recommended plans Colm...
Hugo...the good thing is that it is getting slaughtered owing to the externals of an ABSURD fiscal regime rather than systemic internal issues.
One of things that remains ironic is that Trump is forcing the price of oil down at the same time as oil-bear-skewed journalism touting the massive rise we should all expect from US shale...much of the tier 1 wells have been drilled and assets have been exploited...for every tier 1 well that is depleted you need TWO tier 2 wells...that is literally 50,000 wells per year needing to be drilled to replace 25,000 wells this year...how does oil at 55 bucks less discount for pipeline issues affect the fracking crew's already tenuous profitability (not profitable)?
And in order to match declines...particularly initial declines you have to keep active...nature of the beast.
Though the silver lining is that world declines are massive and not talked about right now...the world's mature oil fields declining at around 3-4 mln bopd per year conservatively. Old Canute (Trump) might think he can command the tide but not for long!
And the royalty rates...not fixed?
What royalty rates do you assume in your modelling for base royalties and ORR?
Do you see them as fixed or sliding? if so, what do you think the combined royalty rates are at 100 dollar oil versus at 43 dollar oil?
Really?
Net earnings for the quarter = 267K CAD
This was a quarter where oil was sold at an average of 68.48 USD (54.7 Net of SPT assuming 20%)
What do you think happens to the earnings with oil now selling at 53 USD (42.4 Net of SPT assuming 20%) if it settles here for any length of time?