RE: Trin10 Sep 2019 13:15
The share price of Trinity Exploration & Production (TRIN:12p), an independent oil and gas exploration and production company focused solely on Trinidad and Tobago, has suffered in the past 12 months after the oil price plunged by 45 per cent in the final quarter of 2018.
However, the West Texas Intermediate (WTI) crude oil price has subsequently increased by 33 per cent to $56.50 a barrel from its December lows. The fact that Trinity’s share price has yet to recover is in no way a reflection on the operational progress the company has been making. Indeed, first-half average production increased by almost 9 per cent to 3,008 barrels of oil per day (bopd), underpinned by five recompletions and 71 maintenance workovers and reactivations of wells.
It’s more profitable, too. Cash profit after supplemental petroleum tax (SPT) and property tax (PT) rose by a fifth to $6.5m in the six month period, and Trinity’s operating break-even improved by 8 per cent to $26.3 a barrel, or less than half the current spot rate. Cash flow performance has improved markedly, too. Cash inflow from operating activities doubled to $10.4m year on year, buoyed by a $3.9m net increase in Trinity’s working capital position. In turn, net cash has risen by 75 per cent to $17.8m (£14.6m) since the start of 2019.
Trinity commenced a high margin low-cost and low-risk onshore drilling programme of up to eight wells in July to boost output and accelerate profit growth, one reason why analyst James McCormack at house broker Cenkos Securities is expecting the company to increase its average output by 6 per cent to 3,182 bopd in the second half, an outcome that should help drive revenue up to Cenkos forecast of $34.5m, up from $32.2m in the first half of 2019. Trinity also plans 12 recompletions of wells and ongoing workovers and reactivations in the second half, too. Taking these into account, Mr McCormack is factoring in 2019 net average production of 3,182 bopd, up from 2,871 bopd produced in 2018.
Interestingly, Trinity has just drilled its first high-angle well, the industry standard in many basins around the world. It makes sense to do so as Trinity’s management – who own 23 per cent of the company’s equity – aim to yield initial production rates and reserves more than double those achieved from conventional vertical wells.
Sensibly, at the start of the second half, Trinity hedged out more than a quarter of its annual output between $50 and $55 a barrel to protect cash flows. The other benefit of hedging is that it mitigates the impact of SPT which is payable when the oil price rises above $50 a barrel. Reassuringly, chief executive Bruce Dingwall and finance director Jeremy Bridglalsingh point out that the business is free cash flow positive “at any price point [from the low $40s per boe]”, thus providing capital to recycle into drilling new wells.
There is clearly value on offer here. After factoring in closing net cash of £14.6m, Trinity has an enterprise valu
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