Q1 2022 Operational Update

RNS Number : 4731I

Trinity Exploration & Production

19 April 2022

 

This announcement contains inside information as stipulated under the UK version of the Market Abuse Regulation No 596/2014 which is part of English Law by virtue of the European (Withdrawal) Act 2018, as amended.  On publication of this announcement via a Regulatory Information Service, this information is considered to be in the public domain.

Trinity Exploration & Production plc

("Trinity" or "the Group" or "the Company")

Q1 2022 Operational Update

Good production and operational cash flow

More targeted strategy for accelerated growth to be executed in H2

Trinity Exploration & Production plc (AIM: TRIN), the independent E&P company focused on Trinidad and Tobago, provides an update on operations for the three-month period ended 31 March 2022 ("Q1 2022" or "the Period"), which delivered good production and operational cash generation, and an update on the development of a more targeted strategy for accelerated growth, initially prioritising the resumption of onshore drilling in H2 which has the potential to significantly enhance production volumes.

Q1 2022 Operational Highlights

· Refreshed growth strategy focused on prioritising deliverable opportunities with a mitigated risk profile, targeting a meaningful step-change in production volumes

· Stable underlying business:

-  Q1 2022 Production volumes averaged 3,013 bopd (Q4 2021: 3,103 bopd; Q1 2021: 3,107 bopd)

-  Production sold averaged 2,929 bopd ( Q4 2021: 3,039 bopd; Q1 2021: 3,051 bopd)

· Total of five recompletions ("RCPs") (Q4 2021: 2) and 24 workovers (Q4 2021: 35) completed, with swabbing continuing across the Onshore and West Coast assets

· Recently acquired PS-4 asset smoothly transitioned into the Onshore portfolio, with RCPs to enhance production on the asset continuing into Q2, followed by two new wells in H2

· Installation of the 31 Supervisory, Control and Data Acquisition ("SCADA") units on our Tier 1 wells in WD-5/6 now complete (covering 50% of land production), with initial indications of lower volatility from these wells through better performance optimisation and quicker response times to well issues

· Solid operational performance despite impact of COVID-19 on human resource capabilities and resultant equipment uptime

Q1 2022 Financial Highlights

· Average realisation of US$ 83.1/bbl   (Q1 2021: US$52.3/bbl) 

· Gross quarterly revenues (unaudited) increased 52% year-on-year to US$21.9m (Q1 2021: US$14.4m)

· Owing to higher realised prices, Supplemental Petroleum Taxes ("SPT") of US$2.0m (equivalent to 9% of gross revenues) will be payable in April 2022 with respect to onshore and offshore production during Q1 2022

· Cash balance of US$17.5m (unaudited) as at 31 March 2022, reflecting strong operating cash generated in Q1 2022 of US$5.5m (Q4 2021: US$3.9m, Q1 2021: US$2.7m) offset by the following material cash outflows:

-  Hedge payments of US$1.8m, as a result of the unexpectedly higher oil price

-  Capital expenditure of c.US$1.7m

-  Tax payments of US$2.5m including Q4 2021 SPT, Q1 2022 Petroleum Profits Taxes and Unemployment Levy 

-  Annual prepayments of US$0.5m (such as insurance) which arise in Q1 of the financial year

· Average operating break-even for Q1 2022 was c. US$31.1/bbl (unaudited) compared to US$25.8/bbl for Q1 2021. While this was expected, lower sales volumes created upward pressure on the breakeven

· The Company forecasts an increase on the usual operating breakeven to c.US$31.5/bbl for FY 2022 - as planned, to support medium term growth through increased technical and intellectual capacity

· Base production for 2022 - before execution of the growth strategy - is expected to be 2,900-3,100 bopd (2021: 3,006 bopd).  However, the Company believes that successful execution of the growth strategy via the planned drilling programme, acquisitions and other initiatives, are likely to significantly enhance production volumes and cash generation in the medium term.

Growth Strategy and Onshore Drilling Programme

Management is focused on refining its growth strategy, geared towards increasing scale and returns as it builds on its existing solid production and cashflow base.  The recently established Technical Committee, comprising two board members and three high-quality independent experts, have helped management refine and prioritise its existing opportunity set to focus on risk-mitigated prospects capable of being delivered with the Company's existing financial and operational resources to increase scale and optimise returns.  It has set ambitious but deliverable growth targets, and the resumption of onshore drilling is the first part of this scaling up process. The decision not to participate further in the NWD process (detailed further below) reflects management's focus on profiling opportunities to determine whether they fit into this risk-mitigated framework. The Galeota opportunity continues to provide the potential for a step change in scale, and to cornerstone long-term growth plans. Management will continue to look to enhance scale and returns through acquisitions, participating in new licencing rounds and further developing existing properties.

Additional details of the growth strategy will be provided in the full year results announcement (year ended 31 December 2021) which will be published in May 2022.

Resumption of Drilling

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.

Galeota Asset Farm Down Process

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.

North West District ("NWD") Request For Proposals ("RFP") Update  

Following the purchase and subsequent ongoing interpretation of the 37km2 subset of the onshore 3D seismic data over Trinity's Lease blocks, a Trinity and Capricorn Energy PLC consortium gained access to the entire 287km2 3D seismic data set through participation in the NWD RFP process operated by Heritage Petroleum Company Limited ("Heritage"), focusing particularly on the potential offered by the Cretaceous stratigraphy (which lies below the formations which have previously been targeted by the Company). Following full review of the data, the consortium decided not to participate further in the process due to the high technical and operational risks, which the consortium concluded significantly challenge the commercial attractiveness of the opportunity. This decision is aligned between the Board, as guided by the Technical Committee, and Management whose focus is on refining and prioritising deliverable and risk-mitigated options that best suit the Company's growth strategy.

Technical evaluation by the consortium did however highlight multiple play-types and identified leads in the deeper underexplored stratigraphy of both the Middle-Lower Miocene and the Cretaceous - facilitating a better understanding of the Southern Basin geology and prospectivity.  Furthermore, this process has enabled the Trinity team to develop basin-wide geological models and the multi-disciplined technical competency required for it to participate in the upcoming onshore bid rounds.

Trinity currently intends to drill at least one well which targets a deeper Miocene structure as part of its onshore drilling programme, believing that this could offer significantly enhanced IP rates and cash returns.  This deeper well remains within the existing depth allowances for the respective sub licence area, and is subject to finalising the technical evaluation as well as agreeing the appropriate commercial terms from Heritage.

Notice of Results

The Company will announce full year results for the year ended 31 December 2021 in May 2022.  

Jeremy Bridglalsingh, Chief Executive Officer, commented: "Trinity's core business remains robust - our reservoirs are performing in line with expectations, and once we are able to deploy human resource with less COVID-related restrictions we anticipate returning to usual production capacity.

"We look forward to the resumption of drilling which will include high angle, horizontal and deeper wells.  While more complex, with higher risk, these wells will have the potential to increase the cumulative number of barrels recovered per dollar of capex invested, and could change the economic paradigm of onshore drilling very positively.

"Furthermore, we remain excited by the prospect of farming down Galeota, allowing this asset to become a more meaningful contributor to production and cash flow in the medium to long term.

"We remain confident that the Government understands the requirement for fiscal reform, despite the near-term outlook for crude oil prices, in order to accelerate the country-wide development of oil and gas resources and to stimulate development of a more robust independent sector in Trinidad. 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.

"We have a resilient, growing business, and are focused on optimising returns from our assets. We are determined to build on the strong foundations in place as we execute against our plans for the next stage of Trinity's development, and we look forward to updating the market across all activities in due course."

Enquiries

For further information please visit www.trinityexploration.com or contact:

Trinity Exploration & Production plc	Via Walbrook PR
Jeremy Bridglalsingh, Chief Executive Officer Nick Clayton, Non-Executive Chairman	https://trinityexploration.com/investors
SPARK Advisory Partners Limited (Nominated Adviser and Financial Adviser)		[phone]
Mark Brady / James Keeshan
Cenkos Securities PLC (Broker)
Leif Powis / Neil McDonald	[phone] / [phone]
Walbrook PR Limited	[phone] or [e-mail]
Nick Rome/Tom Cooper	[phone] / [phone]

About   Trinity (   www.trinityexploration.com  )

Trinity is an independent oil production company focused solely on Trinidad and Tobago.  Trinity operates producing and development assets both onshore and offshore, in the shallow water West and East Coasts of Trinidad. Trinity's portfolio includes current production, significant near-term production growth opportunities from low risk developments and multiple exploration prospects with the potential to deliver meaningful reserves/resources growth.  The Company operates all of its ten licences and, across all of the Group's assets, management's estimate of the Group's 2P reserves as at the end of 2020 was 19.55 mmbbls. Group 2C contingent resources are estimated to be 31.06 mmbbls. The Group's overall 2P plus 2C volumes are therefore 50.61 mmbbls.

Trinity is quoted on the AIM market of the London Stock Exchange under the ticker TRIN.

 

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