Trinity, the independent E&P company focused on Trinidad & Tobago ("T&T"), announces its unaudited interim results for the six month period ended 30 June 2020 ("H1 2020" or "the period").
Bruce Dingwall CBE, Executive Chairman of Trinity, commented:
"We are pleased with the Company's performance during the period. Everyone is aware of the exceptional circumstances - with COVID impacting both operational practices and the oil price. Despite these challenges, our financial resilience, emphasis on cost management and high operating standards have enabled the Company to increase production and increase free cash flows, thereby further strengthening our balance sheet and establishing the necessary foundations for future growth both from existing and new opportunities.
"Importantly, our efficient operating base and financial resilience mean that there is now significant potential to increase our scale, driving economies and thereby further improving our operating break-evens and free cash generation. We can scale the business from both within the portfolio and from external opportunities and believe we are well positioned to grow production, revenues and profitability against an improving backdrop of a more stable and recovering oil price."
H1 2020 Results Summary
Operational
- H1 2020 average net production of 3,282 bopd (H1 2019: 3,008 bopd), representing a 9% increase over the corresponding period last year, underpinned by:
o Base production maintenance through a continuous campaign of 56 workovers ("WOs") and reactivations (H1 2019: 71)
o 6 recompletions ("RCPs") (H1 2019: 5)
o Improved well performance via the successful application of Supervisory, Control and Data Acquisition ("SCADA") with improved quantitative and qualitative performance from the wells
o Robust COVID-19 measures taken with no significant impact to operations and production
· Production volumes for the remainder of 2020 will depend on activity levels which are contingent upon the oil price and general market conditions . However, even if the prevailing oil price environment does not support the case for a resumption of drilling in the near term, average net production for 2020 is still expected to be in the range of 3,100 - 3,300 bopd (2019: 3,007 bopd )
Financial
- Forecast free cash flow positive for 2020 at current forward curve
- Group operating break-even decreased by 6% to USD 24.7/bbl (H1 2019: USD 26.3/bbl) before hedging income and by 15% to USD 22.3/bbl (H1 2019: USD 26.3/bbl) after hedging income. The Company remains on track to achieve its target operating break-even (including hedging income) of USD 20.5/bbl for FY 2020
- Average realisation of USD 36.3/bbl for H1 (H1 2019: USD 59.1/bbl). As a result, no Supplemental Petroleum Taxes ("SPT") will be payable with respect to H1 2020 production (H1 2019: USD 4.4 million)
- Opex decreased by 2% on a per barrel basis to USD 14.3/bbl (H1 2019: USD 14.5/bbl), translating into an 8% increase to USD 8.5 million (H1 2019: USD 7.9 million) due to higher levels of production
- G&A reduced by 19% to USD 2.2 million (H1 2019: USD 2.7 million), representing a 26% reduction on a per barrel basis to USD 3.7/bbl (H1 2019: USD 4.9/bbl), due to cost management initiatives
- Cash balance of USD 19.7 million as at 30 June 2020 (31 December 2019: USD 13.8 million). In addition to the trading results for the period, the H1 2020 cash balance reflects:
o Cash outflows for Q4 2019 SPT of USD 1.6 million, H1 2020 VAT and Levies USD 0.6 million, as well as annual payments (such as insurance and licence obligations) of USD 0.7 million and capex of USD 2.7 million
o Cash inflows of USD 2.7 million (from the drawdown of the CIBC First Caribbean working capital facility), USD 2.8 million (from the sale of VAT Bonds) and net hedging income of USD 0.8 million received during H1 2020
Post Period End Highlights
Operational
- Onshore & Offshore: Production Optimisation Programme
o Diverse, low risk operations across 9 licences with 328 producing wells (up 53% from 2017 average of 215 wells)
o Arrested declines and grown production, delivering an operating and financial base primed for further growth
o Continued application of SCADA technology and wider scale automation continues at pace as Trinity's team increasingly incorporates the use of automation hardware and analytical applications into its well operations processes
o This has led to improved pump run life, fewer remedial workovers, better well up-times and hence reduced production volatility and lower declines in base production
- Offshore: East Coast Galeota Development progressing
o Detailed technical and commercial discussions progressing with a leading International contractor for the offshore facilities design
o Discussions are progressing with both Heritage Petroleum Company Limited and The Ministry of Energy and Energy Industries (Trinity's regulator) in moving the Galeota Block Licence renewal process forward
o The Environmental Impact Assessment ("EIA") study commenced in February with all dry season data collection having subsequently been completed and wet season data collection due to commence this month. The EIA study is due to be submitted in H1 2021
o Execution of the offshore geophysical survey is anticipated in Q3 2020. The data collected from this survey will be used for both the EIA models and pipeline engineering
o Progressing the development of static and dynamic reservoir models with Axis Well Technologies for the development, to aid in optimal platform and well placement for maximum reserves recovery from the minimum number of wells
Financial
- Hedging
o Trinity aims to protect a portion of its cash flows on a rolling basis against a substantial decrease in oil prices. While historic instruments were implemented primarily to hedge against SPT, the more recently purchased instruments aim to protect against oil prices declining below USD 30/bbl
o These financial hedging instruments support Trinity's effective operational hedging strategy, ensuring that it should continue to operate at better than break-even in all but the most extreme circumstances
- Potential SPT Reform
o On the 10 August 2020 the Peoples National Movement ("PNM") was re-elected into office with a manifesto commitment to reform the regressive SPT. The PNM proposed, in the first instance, to increase the threshold for the imposition of SPT for small onshore oil operators to USD 75/bbl (from USD 50.01/bbl) for the fiscal years 2021 and 2022
o The forthcoming budget on 5 October 2020 is an opportunity for the PNM to confirm this increase, and to provide much needed clarity on their intentions to reform SPT to encourage greater investment in the T&T oil and gas sector
Operational & Strategic Look Ahead
- Pursuing Scale
o Broad reserves and production base together with an extensive development pipeline. When combined with increasing use of analytics, transition technologies and automation, provides a solid base for continued organic growth
o Reviewing acreage for new geological plays
o Financial strength compared to many of its peers, where break-evens are higher and finances are potentially more constrained, means that Trinity is well placed to take advantage of commercial opportunities as and when they arise. Asset acquisitions and partnerships offer the potential to increase scale, drive economies and thereby improve operating break-evens and cash generation to further enhance shareholder value
o Memorandum of Understanding (MoU) signed with both a Large International Operator and a Large International Contractor on new business initiatives
o Submitted Expressions of Interest ("EOI's") alongside Large Consortium partner on two new opportunities of scale in Trinidad
- Production activity focused on maintaining a robust production base
o H2 2020 COVID-19 measures have been stepped up and continue to be monitored
o H2 2020 work programme will continue with planned RCPs, routine WOs, reactivations, swabbing and increased automation applications (from the reservoir to the well bore to surface facilities)
- Overriding focus remains on becoming sustainably and significantly free cash flow generative
o Maintain low operating break-even, providing strong operational hedging
o Enhanced by targeted financial hedging
o Further reduce Opex/bbl via increased production (preserving base production and increasing individual well production rates) and leveraging via economies of scale, new technology applications and well optimisations
o Improve commercial terms across the asset base
