Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.
jfk9
It is not like it has gone missing, it is just the point I have made before about revenue flowing into various buckets on its way to the bottom line, being why so little of it actually makes it to the bottom line, whatever the oil price (and don’t get me started on the price TRIN is actually paid). The consensus seems to be that the amount in question flowed into the royalties bucket.
Reflecting on yesterday’s update, particularly the financials, I don’t think anyone can now talk with a straight face about TRIN throwing off cash - it really does seem that the current fiscal regime has TRIN running to stand still. I am now less convinced that there is a value case here, not without significant fiscal reform anyway. The worry has to be that TRIN is being strung along on fiscal reform.
I bet TRIN wish that Galeota was in some other jurisdiction.
LuckCounts
SPT reform: the last we heard from them (three months ago) was “Trinity is increasingly confident that SPT reforms will be implemented in the near term”, with them buying into talk of “a comprehensive review of Trinidad and Tobago's taxation regime underway with outcomes expected during H1 2022”. Are they still buying into all this? Three months later that term does not seem to have got any nearer: “We understand that the Government's deliberations over tax reform, specifically in relation to SPT, are ongoing, and we look forward to news on this matter in the near term with keen interest.”
New drilling: last we heard was “Trinity continues to be well placed to deliver growth with the recommencement of onshore drilling now targeted for H2 2022. This is likely, initially, to comprise two infill wells at the under-exploited PS-4 Block, and Trinity is also working up a potential appraisal well targeting deeper horizons identified by the ongoing seismic interpretation.” Now we have “The Company has committed to resuming onshore drilling, which is expected to commence early in H2 2022, with the precise timing subject to receipt of regulatory approvals and long lead items for more complex wells. This drilling campaign will be carried out in the areas defined by Trinity's Lease Operatorship Agreements and will initially comprise at least five wells, inclusive of low angle (traditional) wells, high angle to horizontal wells and testing of deeper structures with the aim of significantly increasing initial production rates and cash returns. The Company will provide further details regarding the resumption of drilling during May 2022.” Certainly fleshing out what they told us previously, but I would not suggest that anyone should hold their breath for those “regulatory approvals” and, particularly in this market, those “long lead items”.
Farm down timing: we previously had “The process is expected to commence during December with a duration of approximately six to nine months. We will keep the market updated as the farm-down process progresses.” Now we have “The farm down process for the offshore Galeota Asset continues, with the bid deadline in late Q2 2022. The marketing process is being conducted by Stellar Energy Advisors. The Company expects to provide a further update early in H2 2022.” No significant change there, although when read with their now more tentative take on SPT reform, it does not bode well for anything conclusive in the near future - potential partners may decide that the missing SPT reforms “significantly challenge the commercial attractiveness of the opportunity”.
Well done though closing (just) in the blue.
LuckCounts
We will have some indication of how astute they are in ten days or so. But if you look at the TRIN threads on ADVFN you will see that having holdings significantly larger than my usual 10K shares do not lead to those holders calling TRIN right - in fact this seems to incline them more to talk their books. Look at how consistently over-optimistic the usual suspects on ADVFN have been. Do I need to give examples?
LuckCounts
Let’s see what the Q1 update says in a couple of weeks. The market will tell us whether TRIN is cheap.
As for the Newlands, you can track their investing history via RNSs and decide for yourself whether they are likely to be on to something. They may be in the long run, but for most retail investors it comes down to whether meaningful fiscal reform is tabled in the near future.
LuckCounts
Yes, but not that much higher income. TRIN is a solid enough business but it is hardly throwing off money, even though this is often suggested on TRIN BBs. As with any business right now, TRIN’s costs will be rising. The current fiscal regime only allows businesses like TRIN to do modestly better than running to stand still. This is why capital is flowing elsewhere. This is neither de-ramping nor misleading, it is simply the way things are. We are still waiting for the fiscal reform that could change all this and that was supposedly imminent. I’m afraid that what I have been saying about TRIN stacks up better than most of the over-optimistic BB commentary.
You know that I could give examples.
LuckCounts
I am not currently invested, I ditched my 10K recently for a small profit as I just don’t think meaningful SPT reform is imminent and I have therefore decided that I do not want to be holding when the April update comes out. Do you realise that the rate of SPT goes up with higher oil prices? If is not simply a flat rate that kicks in at $75 ($50 for offshore). Consider the possibility that your take on this may be wrong and that the market may have this one about right.
In the Budget delivered in late 2019, against the background of calls for root and branch SPT reform, all we got was an increase in the investment tax credit allowable against SPT from 20% to 25%. A very small positive. But at the same time we had a potentially negative change to capital allowances and a clear negative on loss relief with a reduction from 100% allowability to 75% allowability, basically a PPT tax rise by the back door.
Then we looked to the Budget to be delivered in late 2020, after further calls for root and branch SPT reform and rising hope that meaningful reform was really going to happen this time. But arguably the less reform-minded party got in and we ended up with reform that was limited in scope (small onshore) and duration (2 years).
Courtesy of Ab76 on ADVFN:
The IMF has released a new country report on Trinidad and Tobago (see https://www.imf.org/-/media/Files/Publications/CR/2022/English/1TTOEA2022001.ashx ). Paragraph 34 says “Moreover, comprehensive review of the oil and gas taxation regime will soon be conducted to ensure that the domestic hydrocarbon sector remains internationally competitive. The authorities reiterated their strong commitment to reducing emissions and developing solar energy, calling for a delicate balancing act and recognizing natural gas and ammonia as cleaner carburants.”
RRA22
No specific reforms have been signalled though, just a general intention to reform, which is nothing new. TRIN needs to know about the specific reforms before it and its partners can make business decisions.
Stuart Young also said:
“I make it very clear that part of the job of the Minister of Energy and Energy Industries, under this PNM administration, and in particular of myself in the seat, is to fight for better returns for the people of Trinidad and Tobago whilst keeping us competitive.”
This is the key to the whole thing and highlights the extent to which they want to have their cake and eat it. There is no meaningful SPT reform which is not going to initially reduce the tax take for T&T. This is something that the PNM seem to struggle with. They seem to lack the political courage to lay out a program of reform that is an immediate win for the likes of TRIN and a (not that far) down the line win for T&T. Yet there is no other way to achieve better returns for the people of T&T.
If the PNM fail them again I hope that TRIN take their available capital where it will secure a better return for us shareholders.
LuckCounts
Not undervalued, arguably fairly valued on the basis of the current fiscal regime. The authorities have after all still not even deigned to signal any reforms. They have not even reassured us that the current temporary onshore SPT reforms won’t simply be allowed to lapse!
This is the problem with TRIN: the fiscal regime makes it neither as profitable nor as able to grow production as folk seem to think. And then of course there is the likelihood of that fiscal regime changing in a meaningful way - again not as high as folk seem to think. The market gets it though, sadly. Limited downside from here at least.