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Trinity Exploration: Growing, cash generative producer capable of operating at US$30 oil

The company has gone from “survival mode, to hold steady and now growth”, according to chief financial officer Jeremy Bridglalsingh

Trinity Exploration & Production PLC -
Trinity exited the first-half producing more than 3,000 barrels a day

The recent interim results from Trinity Exploration & Production PLC (LON:TRIN) reveal just how far the Trinidad-focused oiler has come in the last 18 months.

It has gone from “survival mode, to hold steady and now growth”, according to chief financial officer Jeremy Bridglalsingh.

In fact, it is a rarity in the junior oil space - it is a cash generative growth company with operating profit margins more akin to those found in the financial services sector than the natural resources arena (they were around 35% in the first-half).

Trinity’s has the sort of growth trajectory that could very easily sustain a fairly chunky dividend.

WATCH: Trinity chairman speaks to Proactive's Andrew Scott

But before we get into the cut and thrust of just how Trinity proceeds, it is perhaps worth looking at what it owns, while also understanding the journey it has been on in recent years.

Bridglalsingh credits as pivotal the company’s US$20mln fundraiser last summer as it wiped out its debts and allowed the team to start a fairly aggressive eight-well programme that has helped daily production rise to just over 3,000 barrels a day.

That translated into revenues of US$32mln in the six months to the end of June, giving underlying operating earnings (EBITDA) of US$11.2mln. At the period-end, cash and working capital was US$22mln.

Its nine operating licences are onshore and near-offshore and are host to reserves and resources of just over 47mln barrels of crude.

Trinidad itself has a long and rich oil heritage, the political backdrop is benign and the industry infrastructure is all in place.

This and the fact that the company is starting to use state-of-the-art monitoring to optimise production means Trinity is the lowest cost operator of its comparator group.

Viable at US$30 a barrel

So much so, it can survive an oil price below US$30 a barrel. “I don’t think many oil companies can do this,” said chairman Bruce Dingwall.

Probably not.

Trinity’s wells aren’t the multi-thousand barrel gushers you might see offshore Ghana. Instead, initial IP rates tend to be on average around 50 barrels a day range.

That said, they are cheap to drill at an all-in cost of US$1-1.2mln, meaning payback takes as little as two-and-a-half years.

The company’s latest development well is what’s called a high-angle well – and it’s possibly the first of many.

New methodology

Where traditionally Trinity has drilled vertically, these new wells are bored at an angle to the perpendicular. This methodology, it is hoped, will increase production rates and enhance the economics of wells by upwards of 20%. Results from the first high-angle well are expected imminently.

Going forward, the focus will continue to be on “sustainable growth”, according to CFO Bridglalsingh.

For chairman Dingwall, Trinity has become a “yield company”, by which he means one generating predictable levels of cash. So, the firm has options when it comes to enhancing shareholder value.

 “We can reinvest more, but we could also pay a dividend or buy back shares,” said Dingwall.

“There’s a whole series of options for us that many small oil and gas companies don’t have.

“[Paying] a dividend is discussed all the time but at my last company, it took four to five to get to that point.

“It’s something we keep an eye on all the time but we have to consider what will provide the best return for shareholders.”

Quick facts: Trinity Exploration & Production PLC

Price: 9.75 GBX

AIM:TRIN
Market: AIM
Market Cap: £37.44 m
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