Trinity Exploration & Production Plc
(the “Company” or “Trinity”; AIM:TRIN)
2014 Preliminary Results
27th May 2015
Trinity, the leading independent E&P company focused on Trinidad and Tobago, today announces its preliminary results for the year ended 31st December 2014.
Financial highlights
- Revenues of USD 113.5 million (2013: USD 123.8 million)
- EBITDA of USD 28.5 million (2013: USD 34.8 million)
- General and Administrative costs reduced by 19% to USD 15.0 million (2013: USD 18.5 million)
- Cash inflow from operating activities of USD 11.8 million (2013: USD 17.0 million)
- Operating profit before exceptional items of USD 12.2 million (2013: USD 21.6 million)
- Operating loss after exceptional items of USD 123.7 million (2013: USD 50.4 million profit)
- Cash balances of USD 33.1 million at 31st December 2014 (2013: USD 25.1 million)
- Post the year end, Trinity ended the first quarter of 2015 with cash and cash equivalents of USD 7.3 million, receivables of USD 27.2 million (including USD 11.2 million VAT receivables owed to the Company), inventories of USD 11.5 million, debt of USD 13.0 million, trade & other payables of USD 33.9 million and taxation payable of USD 18.4 million
- Moratorium on principal repayments relating to Trinity’s outstanding debt balance until 15 June 2015 agreed with its lenders
Operating highlights
- Group average production levels of 3,603 boepd (2013: 3,798 boepd)
- Final management estimates of 2P reserves of 25.3 mmstb at the end of 2014, compared to the year-end 2013 reserve estimate of 47.7 mmstb
- Upgrade to management resource estimate on the TGAL discovery to Stock Tank Oil Initially in Place (“STOIIP”) of 150.0 – 210.0 mmbbls (best estimate, 186.0 mmbbls)
- Entered into an agreement with Centrica to acquire 80% interests in Blocks 1(a) & 1(b), containing four undeveloped but fully appraised gas discoveries (308 bcf, 246 bcf net to 80%) with the balance of payment due in Q3 2015
- Draft Field Development Plan (“FDP”) completed on schedule
- Gas Sales Agreement discussions with potential off-takers well advanced
- Deposit of USD 2.5 million paid in January 2015; remaining USD 20.5 million plus working capital adjustments with interest accrued due on completion
- Post year-end, 15% reduction in pre-tax operating expenditure (“opex”) with current opex per barrel of USD 21.4/bbl versus USD 25.1/bbl for the month of December 2014, leading to operating break even across all fields
Outlook
On 8th April 2015, in light of the receipt of a number of conditional proposals and expressions of interest in relation to certain of the Company’s assets, Trinity announced that it was launching a strategic review of options open to the Company to maximise value for shareholders. These options may include, but are not limited to, a farm-out or sale of one or more of the Company’s existing assets, a corporate transaction such as a merger with or sale of the Company to a third party or a subscription for the Company’s securities by one or more third parties. The Company is subject to The City Code on Takeovers and Mergers (the “Code”) and has opted to conduct discussions with parties interested in making a proposal to the Company under the framework of a “formal sale process” as set out in the Code in order to enable discussions relating to a merger or sale of the Company, in particular, to take place on a confidential basis.
In response to falling oil prices, Trinity has focused on enhancing its liquidity position by seeking a moratorium on the principal repayments on its senior secured credit facility, disposing of non-core assets such as Tabaquite and the WD-16 lease operatorship block, reducing its operating and general and administrative costs, obtaining an extension on the purchase consideration of the 1(a) & 1(b) licences as well as pursuing all means at its disposal with respect to the collection of outstanding VAT payments.
Our operational focus remains on managing the portfolio to optimise production levels and to manage further reductions in operating costs and general administrative costs to bring all fields break-even down further. Ensuring the health and safety of all of our employees will remain our priority.
In addition to our operational cost reductions the non-executives, have elected to suspend all fees relating to their roles and Bruce Dingwall has assumed the role of Non-Executive Chairman (previously Executive Chairman).
Our objective remains to deliver value to shareholders by sourcing a funding solution to monetise the assets via the strategic review and formal sales process. However, Trinity shareholders are advised that there can be no certainty that any offers will be made as a result of the formal sales process, that any sale or other transaction will be concluded, nor as to the terms on which any offer or other transaction may be made.
Joel “Monty” Pemberton, Chief Executive Officer of Trinity, commented:
“Trinity has reacted quickly to continued global commodity price volatility. We have reduced the overheads in our business and cut back on discretionary costs, and as a result have seen a substantial fall in our general and administrative and operating costs. At the same time a rigorous subsurface review has resulted in a significant resource upgrade on the TGAL discovery with a joint Trintes-TGAL development plan well advanced.
Our core producing asset base continues to yield solid production levels with declines being modest against a backdrop of reduced investment. As a result we were able to deliver an operating profit (pre-exceptionals) of USD 12.2 million and robust cash conversion levels. This is a testimony to the quality of those assets and to the hard work and abilities of the Trinity team. Across the Onshore, West Coast and the East Coast we have an inventory of drilling locations that could enhance production levels on the deployment of capital.
The Strategic Review announced in April 2015 is now well underway with the Board considering a number of options to maximise and ensure long term value for Trinity’s shareholders.”
Management will be hosting a conference call for financial analysts at 13:00 BST to discuss the results. Please contact TEP@brunswickgroup.com for the details.
Competent Person’s Statement:
The information contained in this announcement has been reviewed and approved by Craig McCallum, Chief Operating Officer for Trinity Exploration & Production plc, who has over 25 years of relevant experience in the oil industry. Mr. McCallum holds a Master degree in Petroleum Engineering.
Enquiries:
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Trinity Exploration & Production Joel “Monty” Pemberton, Chief Executive Officer Tracy Mackenzie, Head of Investor Relations |
Tel: +44 (0)13 1240 3860
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Tel: +44 (0) 20 7653 4000
Tel: +44 (0) 20 7029 8000 |
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Brunswick Group LLP (PR Adviser) Patrick Handley William Medvei |
Tel: +44 (0) 20 7404 5959
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Non-Executive Chairman’s & Chief Executive Officer’s Review
East Coast operations
Average 2014 net production from the East Coast was 1,106 barrels of oil per day (bopd). In line with 2013 average levels of 1,114 bopd.
The Galeota Ridge structure on the East Coast contains the Trintes field, the TGAL-1 exploration well discovery and various low risk prospects. Current production comes from the Alpha, Bravo and Delta platforms in the Trintes field, and whilst on-going steps to improve operating efficiency have been effective, challenges remained in sustaining production at a time when capital has not been deployed towards new drilling.
Earlier in the year production was impacted by the failure of the D-9 electric submersible pump (“ESP”) which contributed to a loss of 230 bopd. The D-9 ESP was replaced in late June 2014 and production was restored to its previous level. The B-9X infill well was successfully completed, following initial problems with mud pumps, encountering 85 feet of net oil sand in the M-sand and the original oil water contact for the fault block. During the year production from the B11XX well was successfully restored and the B6X well was brought back online after both stopped producing due to a Variable Frequency Drive (“VFD”) failure.
Improved well production management has reduced the need for workovers as the frequency of wells going offline has decreased. Moving forward, new drilling could arrest base declines with an inventory of new well locations identified. These have been integrated into a joint Trintes-TGAL development plan that aims to optimise capital allocation across our East Coast fields.
Throughout 2014 several cost saving initiatives were realised on the East Coast and include; the benefits of a fuel subsidy which took effect from September 2014, a renegotiation on vessel transfers with regards to shift systems, and changing cargo vessel transfers to a spot basis from a monthly fixed basis. Further cost saving initiatives are ongoing, including additional efficiencies on shift systems, and installing additional fuel capacity on platforms which will further reduce the number of cargo vessel transfers. These moves are working to bring optimum operating efficiency across East Coast operations and significantly reducing break-even levels.
Whilst the resource base on the Galeota Block is significant, we were initially challenged with operations on the Trintes field. We have now implemented the appropriate commercial, technical and operational practices to enable value optimisation from this asset. Our Onshore and West Coast assets are strong producing assets that have performed broadly in-line with expectations, and all have promises of further production upside.
West Coast operations
Average 2014 net production from the West Coast was 491 barrels of oil equivalent per day (boepd). This represents a decline from 2013 average levels of 596 boepd.
Increased workover and recompletion activity on the PGB block in H1 2014 led to a positive increase in production rates compared to 2013. However, with discretionary capital expenditure limited in H2 2014, average production levels for the year reflect a natural base decline. The ABM-151 well and ABM-150 well both represent recompletion (“RCP”) opportunities for improving production moving forward.
Onshore operations
Average 2014 net production from the Onshore was 2,006 bopd. This represents a modest decline from 2013 average levels of 2,088 bopd.
The focus during 2014 continued on arresting base declines and increasing production via workovers and RCPs. In 2014, production levels benefited from 5 new wells which were drilled and completed in H2 2013. New drilling operations were suspended during H1 2014 while discussions were ongoing with Petrotrin regarding upgrading the Lease Operatorship Model to improve efficiency, reduce operating costs and assess enhanced oil recovery opportunities and other synergies on the combined acreage.
In total, 10 RCPs were conducted in 2014, in addition to the routine workovers. The PS-575 well was successfully perforated in the Upper Forest (“UF”) 1 and 2 sands and added initial production of c.200 bopd.
TGAL Development
With management resource estimates on Trinity’s TGAL-1 discovery upgraded to STOIIP of 150.0 – 210.0 mmbbls (best estimate 186.0 mmbbls), work continues apace to have the Field Development Plan issued. The existing 3D seismic dataset over the TGAL and Trintes areas has been reprocessed to improve data quality using Common Reflection Surface (“CRS”) technology for the first time on the East Coast of Trinidad. The results from the application of a leading edge processing technology were transformative in allowing Trinity to use the seismic to image the complex subsurface structure of the Trintes and TGAL fields.
At the end of 2014, the subsurface evaluation was approximately 90% completed, and included integration of seafloor and shallow seismic data. The topside facility concept has been narrowed down to two options, and it seems practical to adopt a phased approach to developing the field by bringing onto production the reserves nearer to the Trintes field and putting it through a Trintes facility to shore. The revenues generated would then allow for reinvestment in other facilities and pipeline.
Acquisition
Trinity has the potential to significantly grow our resource base with our agreement to acquire Centrica plc’s 80% ownership of Blocks 1(a) & 1(b), potentially adding c.40.0 mmboe of 2C resources. The asset is fully appraised with six existing wells and a high quality 3D dataset having established excellent reservoir quality and proven well deliverability located in shallow (20-35m) water. Post development, a plateau production rate of 80.0 mmcf/d (64.0 mmcf/d or 10,700 boepd net) is forecast. The acquisition is pending completion with the balance of payment of USD 20.5 million plus working capital adjustments with interest accruals due in Q3 2015.
Reserves and Resources
A comprehensive management review of all assets has recently been concluded and has estimated the current 2P reserves to be 25.3 million stock tank barrels (mmstb) at the end of 2014, compared to the year-end 2013 reserve estimate of 47.7 mmstb. The subsurface review has defined investment programmes and constituent drilling targets to commercialise the reserves as detailed, by asset area, in the table below. The 2P reserve estimate is based on a fully funded programme under the assumption that management will secure the funding required to deliver this programme.
| Management Estimates: 2P Reserves | |||||
| 31-Dec-13 | 2014 Prod’n | Revisions | 31-Dec-14 | ||
| ASSETS | mmstb | mmstb | mmstb | mmstb | |
| East Coast | Oil | 36.3 | (0.4) | (21.3) | 14.6 |
| Onshore | Oil | 6.8 | (0.7) | 0.7 | 6.8 |
| West Coast | Oil | 4.6 | (0.2) | (0.5) | 3.9 |
| TOTAL | 47.7 | (1.3) | (21.1) | 25.3 | |
The primary reduction in reserves is attributable to the Trintes field, on the East Coast, and is due to a revised view of the reservoirs potential in a lower commodity price world where capital allocation is constrained.
During 2014 significant progress has been made preparing the FDP for the TGAL discovery and a comprehensive subsurface evaluation of the Trintes Field was subsequently completed. On this basis, a total of c. 7.3 mmstb has been re-categorized from 2P reserves into 2C resources at Trintes. Further development potential exists along the Galeota anticline to the NE where almost 300.0 mmstb of STOIIP has been mapped through the integration of 3D Seismic data and the EG-3 and EG-4 wells that define and tie the dataset to the North East.
The TGAL discovery has estimated gross 2C resources of 22.1 mmstb (14.4 mmstb net to Trinity’s 65.0% interest), a modest recovery factor of 12% based on STOIIP best estimate of 186.0 mmstb. Therefore, notwithstanding further, identified potential in the Galeota block, estimated combined 2P and 2C resources from the Trintes-TGAL area totals over 36.0 mmstb.
Financial review
In 2014 Trinity generated USD 12.2 million operating profit and a USD 141.2 million loss after tax due to exceptional items(principally asset impairment and exploration costs written off), finance costs, currency translation and taxation of USD 135.9 million, USD 5.1 million, USD 0.2 million and USD 12.7 million respectively.
Statement of Comprehensive Income
Trinity’s financial results for 2014 showed a Total Comprehensive Loss of USD 141.2 million (2013: USD 38.8 million loss) on gross revenues of USD 113.5 million.
Operating Revenues
2014 revenues were USD 113.5 million (2013: USD 123.8 million). This decrease is mainly attributable to the combination of (i) lower production across all assets and (ii) the decline in average realised oil price of USD 85.8/bbl (2013: USD 91.6/bbl)
- Production
- Production for 2014 was 1.3 mmbbls (2013: 1.4 mmbbls)
- Average production was 3,603 bopd, with 56% (2,006 bopd) sold onshore, 14% (491 bopd) attributable to the west coast and 30% (1,106 bopd) from the east coast
- Oil prices
Realised oil price for 2014 averaged USD 85.8/ bbl (2013: 91.6/ bbl)
Operating Expenses
- Operating expenses were USD 101.3 million (2013: USD 102.2 million) which are made up as follows:
- Royalties of USD 37.0 million (2013: USD 37.3 million)
- Production costs of USD 32.9 million (2013: USD 33.1 million)
- Depreciation, depletion and amortisation amounted to USD 16.3 million (2013: USD 13.2 million)
- General and administrative expenses of USD 15.0 million (2013: USD 18.5 million)
Operating Profit before Exceptional Items
Operating profit before exceptional items amounted to USD 12.2 million (2013: USD 21.6 million)
Exceptional items
Exceptional items amounted to USD 135.9 million (2013: USD 28.8 million loss) comprising mainly of the following:
- Impairment loss of USD 96.2 million of property, plant and equipment assets was recognised on the carrying values of oil and gas assets due to lower forward oil prices. Impairment of the exploration well EG-8 c. USD 22.6 million on the basis that sufficient data exist to indicate that the book value will not be recovered due to the absence of commercial reserves. The Pletmos exploration costs of c. USD 0.9 million have been impaired as there is no further exploration and evaluation planned or budgeted and management is in the process of relinquishing the license
- Exploration write off of the El Dorado 1 well of USD 14.9 million
- Exceptional items of USD 1.2 million represents a provision for a potential claim against a subsidiary of the Group by a supplier of services in the oil and gas industry
Operating Loss after Exceptional Items
The Group’s operating loss after exceptional items was USD 123.7 million (2013: USD 50.4 million profit).
Net Finance Costs
In 2014 finance costs amounted to USD 5.1 million (2013: USD 2.4 million), which is made up of the unwinding of the decommissioning liability USD 1.5 million (2013: USD 1.2 million) and interest on the fully drawn (USD 20.0 million & USD 25.0 million) Citibank loans of USD 3.6 million (2013: USD 1.2 million).
Taxation
The tax charge for 2014 was USD 12.7 million (2013: USD 9.5 million), and its components are described below.
- Supplemental Petroleum Tax (SPT): All SPT due for 2013 was paid as it fell due. The SPT charge for 2014 amounted to USD 14.9 million which is still payable (2013: USD 10.4 million)
- Petroleum Profits Tax (PPT): The PPT charge for the year was USD 1.1 million (2013: USD 5.8 million), mainly incurred by Oilbelt Services Limited and Lennox Petroleum Services Limited
- Corporation tax (CT): The CT for the year amounted to USD 2.2 million (2013: USD 0.9 million)
- Deferred tax: There was a decrease in the deferred tax asset and deferred tax liability by USD 37.1 million and USD 42.6 million respectively. Hence, the combined movement resulted in a net credit of USD 5.5 million (2013: USD 7.7 million)
Total Comprehensive Income
Trinity’s financial results for 2014 showed a Total Comprehensive Loss of USD 141.2 million (2013: USD 38.8 million loss) on gross revenues of USD 113.5 million (2013: USD 123.8 million).
Statement of Cash Flows
The opening cash balance as at 1st January 2014 was USD 25.1 million and the ending cash balance at 31 December 2014 was USD 33.1 million.
Changes in Working Capital
During the year Trinity experienced working capital outflows of USD 12.8 million. Significant changes are outlined in the table below:
| Uses of Cash | Sources of Cash | |
| USD ‘000 | USD ‘000 | |
| Inventory | 121 | |
| Trade and other receivables | 14,792 | |
| Trade and other payables | 27,742 | |
| Change in Working Capital | 12,829 |
The Company paid taxes of USD 3.8 million in 2014 (2013: USD 25.4 million) which were related to production taxes for 2013.
Liquidity
Trinity’s revenues have decreased as a result of a sharp decline in oil prices, which has in turn limited the Company’s ability to reinvest in its key assets to maintain or grow production. In addition, Trinity’s covenants on its credit facility arrangement was breached with Citibank (Trinidad and Tobago) Limited. Trinity repaid USD 20.0 million in February 2015 and received a moratorium on principal payments until 15th June, 2015. Trinity has had and continues to have pro-active discussions with its principal lender to manage the repayment profile on the remaining USD 13.0 million debt balance. Trinity has a working capital deficit of USD 16.7 million (2013: surplus USD 5.3 million).
Operating activities
Cash inflow from operating activities was USD 11.8 million (2013: USD 17.0 million), being the net effect of
- Adjusted profit inflow of USD 28.5 million (2013: 32.0 million)
- Changes in working capital outflow of USD 12.8 million (2013: inflow of USD 10.5 million)
- VAT refunds due at year-end totalled USD 11.6 million with USD 10.3 million VAT due from the T&T tax authority while USD 1.3 million due from the UK. Notably, VAT refunds of USD 18.3 million were received in 2014
- Taxation paid of USD 3.8 million (2013: USD 25.4 million)
Investing activities
Cash outflow from investing activities was USD 16.9 million (2013: USD 85.6 million), and is made up of capital expenditure
Capital expenditure during 2014 totalled USD 16.9 million (2013: USD 92.1 million) with spend occurring across all of the Group’s assets:
- Exploration and evaluation assets: The majority of expenditure of USD 5.0 million in 2014 relates to drilling of the El Dorado 1 exploration well which straddled December 2013 into February 2014. The total cost of this well was USD 14.9 million which was classified as exploration cost write off due to uncommercial reserves being discovered
- Property plant and equipment: expenditure on property, plant and equipment for the year was USD 11.9 million (2013: USD 56.7 million). This included:
- Wells drilled: USD 8.7 million was spent to drill 2 wells, which included 1 onshore well and 1 east coast, both of which were unsuccessful and had unrealised production
- Infrastructure upgrades: USD 3.2 million was spent on a number of projects, across the onshore, west coast and east coast assets, which were required to sustain current production and create capacity for future production growth
Cash inflow from financing activities
Cash inflow from financing activities was USD 13.0 million (2013: USD 71.1 million), being the net effect of: Full drawdown of the Citibank USD 25.0 million facility, Debt repayment and finance costs:
- Repayment of borrowings of USD 8.0 million (2013: USD 6.2 million) includes principal repayments of both Citibank loans
- Payment of loan finance costs of USD 4.0 million (2013: USD 1.2 million)
Closing Cash Balance
Trinity’s cash balance at 31st December 2014 was USD 33.1 million.
Trinity Exploration & Production Plc
Consolidated and Company Financial Statements
(Expressed In United States Dollars)
31st December, 2014