Trinity, the independent E&P company focused on Trinidad and Tobago, today provides an update to illustrate its financial strength in an environment of lower oil prices. Over the past six years the Company has evolved its operating and financial position to enable the business to deal with a lower oil price environment and other global economic uncertainties.
Since the beginning of 2020, the Covid-19 virus and more recent OPEC stand-off has prompted a rapid decline in oil prices with WTI (Trinity's benchmark crude) currently trading below US$35.0/barrel. Trinity, through operational initiatives and prudent financial planning, now benefits from a series of mitigants that help to protect the business in the current environment, including:
· no Supplemental Petroleum Tax ("SPT") is payable if oil price realisations remain below an average of US$50.01/bbl in any calendar quarter
o January realisation was US$58.2/bbl and February US$51.6/bbl with a March realisation of US$40.2/bbl or less required for a Q1 average below US$50.01/bbl
· a sustained reduction in operating break-even levels in recent years
o H1 2019: US$26.3/bbl
o sub US$30/bbl operating break-even continued through 2019 and into 2020
o follows established trend; 2015: US$47.2/bbl, 2016: US$29.2/bbl, 2017: US$28.4/bbl, 2018: US$29.0/bbl
o increased production levels and relatively fixed cost base underscores this industry leading break-even and low oil price resilience
· Overriding Royalties (ORR) payable reduce with lower oil prices
o Onshore: from 33% to 25% and 20% respectively when realisations average below US$50.0/bbl and US$40.0/bbl respectively
o Offshore East Coast: from 13% to 12% and 11% respectively when realisations average below US$50.0/bbl and US$40.0/bbl respectively
o Offshore West Coast: from 11% to 10% when realisations average below US$50.0/bbl
· a strong oil price hedge position has been put in place to protect the Company's revenues for a large part of 2020; and
· only a small proportion of the Company's profits are subject to Petroleum Profits Tax ("PPT") due to capital allowances on current capital expenditures and shelter from past tax losses
Financial Strength/Hedging
· Cash balance of US$13.8 million (unaudited) as at 31 December 2019 and undrawn working capital facility of US$2.7 million in place with CIBC First Caribbean providing further financial flexibility
· Low cost base: OPEX/bbl was US$14.9/bbl in H1 2019 and G&A costs US$5.0/bbl
· Flexibility on timings and extent of deployment of any investment capital
· Trinity took advantage of the oil price strength in July and October 2019 and again in January 2020 to put in place layers of hedging designed to partially offset the impact of SPT when WTI is between US$50.0/bbl and US$56.0/bbl, whilst retaining exposure to rising oil prices over the majority of production
· The Company currently has hedges in place covering 47,500 bbls/month for the first six months of 2020 (equating to approximately 46% of its 2019 exit production) and 28,333 bbls/month for the second six months of 2020 (equating to approximately 28% of its 2019 exit production). The Company will therefore receive US$6.0 for each hedged barrel if WTI continues to trade below US$50.0/bbl
· Trinity also benefits from a large tax loss position of US$244.1 million (unaudited, as at 31 December 2019) which effectively means that around 75% of taxable profits are sheltered from PPT
Operational Hedging
· Higher 2020 base production established with year to date average reported production of over 3,300 bopd (up 10% on 2019 FY average)
· Multiple options to maintain and grow production including low cost recompletions, workovers and new infill wells onshore
· Operationally geared towards reducing cost structures and optimising production following better than expected results from the initial two well trial of Weatherford's Supervisory, Control and Data Acquisition ("SCADA") platforms;
o SCADA is currently in place on 6 wells with a further roll out being carried out during 2020
o first time this technology has been deployed for oil production onshore in Trinidad
o provides a low-cost means of protecting and enhancing base production levels
o full production benefits and operating cost savings will become more apparent during the next 1-2 years
· Moving towards High Angle Wells ("HAWs"), increasing initial production rates and well economics/returns
Outcomes
The combination of operating and financial initiatives implemented by management means that Trinity can be Free Cash Flow ("FCF") positive across a broad range of oil prices. Trinity's operating break-even has consistently been below US$30.0/bbl in all periods since the new management's measures took effect in 2016.
Outlook
With a low operating break-even and increasing production from new infill wells, the Company will prioritise bottom-line free cash generation andmaintaining a strong balance sheet during 2020. The hedging programme that has been put in place, as well as partially mitigating the impact of SPT when oil prices are in a US$50.0-US$56.0 range,also provide s the Company with a degree of protection against a sustained period of lower oil prices.
Operationally, the extent and timing of the resumption of the onshore drilling programme in 2020 will be dependent on the prevailing economic environment . In the meantime, the sub-surface team has been tasked toprioritise the identification of HAW drilling locations and t he Company will continue to roll out further SCADA platforms on selected existing wells and on any new wells.
On the Company's east coast Galeota licence, positive dialogue continues with both Heritage Petroleum Company Limited (Trinity's partner) and The Ministry of Energy and Energy Industries (Trinity's regulator) in moving both the Trintes Field area and the TGAL field development forward.
The Company will announce its audited preliminary results for the year to 31 December 2019 in April 2020. This will provide full details on production, margins, operating break-even, costs and profitability - highlighting the growing value of the Company's assets and continued strong financial performance.
Bruce Dingwall, CBE, Executive Chairman of Trinity, commented:
"We continue with our strategy of delivering returns for our shareholders by growing production and margins as well as maximising free cash flow from our attractive portfolio of assets. The Company is prioritising returns on investment and maintaining a strong balance sheet. We have established strong and sustainable foundations from which to provide upside across a broad range of oil price scenarios and are focused on driving value for investors. The fact that the Company continues to accrue cash at lower oil prices is testament to our financial discipline and our lean business model putting us in a highly resilient position. We are confident that our operating break-even will stay in the vicinity of the last reported US$26.3/bbl as we continue to manage the business with this as an important KPI. Our preliminary results in April will provide full details around our cost base and measures in place to respond to any sustained period of low oil prices."