Operational, Strategic and Loan Update

RNS Number : 9247R

Trinity Exploration & Production

14 March 2016

 

Trinity Exploration & Production Plc

(the "Company" or "Trinity"; AIM: TRIN)

Operational, Strategic and Loan Update

14 March 2016

Trinity, an independent E&P company focused on Trinidad and Tobago, today provides an update on its operations and financials for the year to December 2015 as well as details on its asset disposals, loan moratorium and forward strategy and portfolio.

Operating Update

·    Group average net production volumes of 2,896 boepd for the year to 31 December 2015 (2014: 3,603 boepd)

·    Production volumes continue to reflect the robust nature of the asset base with declines due to natural depletion being modest against a backdrop of reduced levels of investment for 2015

·    High quality reservoirs, low natural decline rates and successful low-cost workovers maintaining production levels

·    Operational expenditure of US$0.2m on the East Coast B10 and D-16 well workovers yielded a stabilised production rate of  c. 70 bopd (annualised revenues of c.US$0.9m at US$35/bbl realised)

·    For the first two months of 2016 daily production averaged 2,598 boepd again due to reduced levels of investment as was experienced in 2015

·    Contingent upon the availability of funding during the coming year, 2016 net average production is expected to be in the range of 2,500 - 2,800 boepd (lower case: managed decline, uppercase: refinancing)

Financial Update*

·    Cash balance at end of December of US$8.3 million, trade and other receivables of US$10.6 million, inventories of US$4.0 million, debt of US$13.0 million, trade and other payables of US$27.8 million and taxation payable of US$23.5 million

·    Pre-tax operating expenditures ("opex") reduced by 33% to US$22.0 million (2014: US$32.9 million)

·    General and Administrative ("G&A") costs reduced by 30% to US$10.5 million (2014: US$15.0 million)

·    Further reductions to G&A are ongoing with a steady state annual run-rate of US$3.7 million being targeted by the year end 2016 (equivalent to US$3.6/bbl at current production levels)

·    Targeting operating breakeven across all fields of below US$30/bbl by the year end 2016

·    Onshore (lower cost environment) breakeven levels of below US$15/bbl targeted by the year end 2016

·    Continued success in establishing a leaner, more efficient cost base to realise further economies of scale and leverage from increased realisations and/or production

*All figures for the financial year 2015 are unaudited

Loan Update

Current moratorium on principal repayments relating to Trinity's outstanding debt extended for a two week period to 25 March 2016.

Disposal Update

On 21 October 2015, Trinity announced that it entered into an agreement (the "Touchstone SPA") to sell its interests in the WD-2, WD-5/6, WD-13, WD-14 and FZ-2 licenses and related fixed assets (the "Blocks") to Touchstone Exploration Inc. ("Touchstone") for a cash consideration of US$20.8 million.  This sale was subject to various conditions precedent, however by the back stop date, one of these remains outstanding. 

The Touchstone SPA relating to this disposal had a backstop date of 13 March 2016 and this has now expired without all of the required consents having been received, entitling either party to terminate the Touchstone SPA. The Group has now sent a termination notice in respect of the Touchstone SPA to Touchstone. 

As a result, the sale of the Blocks to Touchstone will not complete and the deposit of US$2.08 million, currently held in escrow, is expected to be released to Touchstone under the terms of the Touchstone SPA and a related escrow agreement.

These particular onshore assets have the lowest production costs within the Trinity portfolio resulting in positive operating cash flows even in the current low oil price environment and before the full financial benefit of ongoing cost efficiencies are realised. Breakeven levels of below US$15/bbl realised price (2015 unaudited: c.US$24/bbl) are being targeted for the onshore portfolio by the end of 2016. Retaining these assets enhances Trinity's portfolio for attracting the funding required to implement the forward strategy of the Group.

The sale of the Group's 100% interest in the Guapo-1 block ("Block GU-1") to New Horizon Exploration Trinidad and Tobago Unlimited ("New Horizon") for a cash consideration of US$2.8 million (the "Guapo Transaction") is proceeding. The Guapo Transaction is subject to standard regulatory approvals, including approval from Petrotrin and approval by Trinity's shareholders.  The Guapo Transaction was approved by Trinity's shareholders in October 2015 and conditionally approved by Petrotrin in December 2015 with final approval from Petrotrin being dependent on Ministerial consent which is being pursued. 

Strategic & Portfolio Update

As a result of the significant reduction in operating and G&A costs that the Company has put in place and the resultant increased margins, the forward plan on the asset base, even at low oil prices is attractive. As a result of this effort, the Board and Management believe that Trinity's core portfolio offers an attractive investment opportunity on the resolution of the current balance sheet constraints.

To this end Trinity has engaged two specialist refinancing advisers, Imperial Capital of New York and Cantor Fitzgerald of London. Whilst at an early stage in discussions, Management is encouraged by the interest levels from several institutions.

Consistent with the objectives of the strategic review and FSP, our near term objective is to conclude a complete refinancing structure that will enable the Company to retire its existing senior debt facilities, reduce other outstanding payables and provide sufficient additional capital to retain the integrity of its assets and grow production and cash flow. The combination of a dramatically reduced cost base with drilling and service costs that continue to adjust downward with falling commodity prices, transforms the economic potential of the Group's reserve base.

Trinity retains a close and regular dialogue with its senior debt lender, the government and wider creditors to communicate its strategy to deliver a funding solution to the best benefit to all stakeholders.

Subject to the availability of appropriate financing and dependent upon drilling costs and prevailing commodity prices, the Company's objective upon receipt of financing is to eventually accelerate and expand its drilling programme across its asset base from a large inventory of existing drilling locations. This deep inventory of workover, recompletion and new drilling locations can be targeted on the availability of growth capital. Management believes that it is important to stress that these drilling locations are all targeting existing proven and probable (2P) reserves and are not subject to the subsurface risks attached to exploration and appraisal activities. Trinity believes this offers a key point of differentiation from a significant percentage of its peer group.

Latest Management estimate Group total 2P reserves are 25.3 MMboe with Group 2C contingent resources of 21.7 MMboe (year end 2014). Subject to capital availability and a higher oil price environment, the Company is well positioned for growth with an inventory of high quality drilling locations across its onshore, East Coast and West Coast acreage and continues its work on completing the development plan for the updip development project TGAL (TRIN: 65% WI), which includes the Galeota Ridge to the north east.

Trinity expects 2016 net average production to be in the range of 2,500 - 2,800 boepd with the higher end being contingent on available funding during the year. Capital expenditure will be prioritised to maintain and grow production through recompletions and well workovers before any new drilling takes place.

Across Trinity's ongoing asset base there are identified pathways for value and production growth. Until such time as these can be funded the Company aims to continue to reduce operating breakeven levels whilst warehousing and retaining the integrity of a significant volume of reserves and resources.

While the company is progressing a funding solution and is encouraged by interest levels there is no certainty that any such transaction or refinancing will be concluded on acceptable terms.

The Company remains in a formal sale process ("FSP") as it continues with its strategic review. 

Competent Person's Statement

The information contained in this announcement has been reviewed and approved by Graham Stuart, the Company's Technical Advisor who has 34 years of relevant global experience in the oil industry.  Mr Stuart holds a BSC (Hons) in Geology.

Enquiries:

Trinity Exploration & Production Bruce Dingwall, Executive Chairman Tracy Mackenzie, Head of Investor Relations	Tel: [phone]
RBC Capital Markets                                                               Nomad & Broker Matthew Coakes Daniel Conti	Tel: [phone]
Oil & Gas Advisory Jakub Brogowski Roland Symonds	Tel: [phone]

Notes to Editors

About Trinity

Trinity is one of the largest independent E&P company focused on Trinidad and Tobago. Trinity currently operates assets onshore and offshore on both the West and East coasts. Trinity's portfolio includes current production, significant near-term production growth opportunities from low risk developments and multiple exploration prospects.  The Company operates all of its licences. Trinity is listed on the AIM market of the London Stock Exchange under the ticker TRIN.LN.

 

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