Preliminary Results
25 May 2016
Trinity, an independent E&P company focused on Trinidad and Tobago, announces its preliminary results for the twelve months ended 31 December 2015.
Financial highlights
- Average realised oil price of USD 45.5/bbl for 2015 (2014: USD 85.8/bbl)
- Revenues of USD 48.2 million (2014: USD 113.5 million)
- Pre-tax operating expenditures (“OPEX”) reduced by 33% to USD 22.0 million (2014: USD 32.9 million)
- General and Administrative (“G&A”) costs reduced by 30% to USD 10.5 million (2014: USD 15.0 million)
- EBITDA (before exceptional items/ exploration costs written off) of USD 1.2 million (2014: USD 28.5 million)
- Operating loss (before exceptional items/ exploration costs write off) of USD 7.0 million (2014 : USD 12.2 million profit)
- Net loss after tax and exceptional items of USD 58.5 million (2014: USD 141.2 million)
- Cash inflow from operating activities USD 2.5 million (2014: USD 11.8 million inflow)
- Cash balance at period end of USD 8.2 million (2014: 33.1 million)
Operating highlights
- Total average net production for 2015 was 2,896 bopd (2014: 3,603 bopd)
- Continued success in establishing a leaner, more efficient operating cost base
- Continued progress made towards TGAL Field Development Plan (“FDP”)
- Development and exploration activities remain suspended, 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 bopd (lower case: managed decline, uppercase: refinancing)
Strategic highlights
- Trinity is currently conducting a strategic review of its business in order to maximise value for shareholders. The Company is subject to The City Code on Takeovers and Mergers and has opted to conduct discussions with parties interested in making a proposal to the Company under the framework of a Formal Sales Process (“FSP”) of its assets
- Consistent with the objectives of the strategic review and FSP, our near term objective is to conclude a complete refinancing with a structure that will enable the Company to retire its existing senior debt facilities, significantly reduce trade creditors and provide sufficient additional capital to maximise returns from its assets by growing production and cash flow
- The Company is in detailed discussions with a number of interested parties about refinancing the Group
- As drilling and service costs continue to adjust downward, the combination of a profoundly reduced cost base with rising commodity prices transforms the economic potential of the reserve base
- Subject to the availability of appropriate financing and dependent upon drilling costs and prevailing commodity prices, the Company’s objective is to resume its drilling programme across its asset base from a large inventory of drilling locations
Loan Update
Current moratorium on principal repayments relating to Trinity’s outstanding debt is in place until 27 May 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 USD 20.8 million. The Touchstone SPA was subject to various conditions precedent and had a backstop date of 13 March 2016. The backstop date expired without all of the conditions precedent being satisfied. As a result, the sale of the Blocks to Touchstone did not complete with the deposit of USD 2.08 million, which had been held in escrow, being subsequently released to Touchstone from the escrow account (this was not included in Trinity’s cash balances).
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 USD 15/bbl realised price (2015: c. USD 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 USD 2.8 million (the “Guapo Transaction”) has been completed. All the conditions precedent for the Guapo Transaction have been satisfied including standard regulatory approvals, which were granted on 15 April 2016. The transaction was subsequently finalised with the closure of the cash settlement on 25 May 2016. The cash proceeds will be used predominantly by Trinity for working capital purposes.
Outlook
Key priorities for the Company are to:
- Achieve significant further reductions in OPEX and G&A during 2016
- Subject to capital availability, targeting an operating breakeven level across the onshore fields of below USD 15/bbl and all other fields of below USD30/bbl by the year end 2016
- Continue developing a leaner, more efficient cost base to realise further economies of scale and leverage from increased realisations and/or production
- Finalise financing to fund the Company’s future developments
Further to the refinancing initiative announced in March 2016, Trinity is in detailed discussions with a number of parties. Trinity Shareholders are advised that, whilst Management is encouraged with progress to date, there can be no certainty that any offer or other transaction will result from these discussions or as to the terms on which any offer or other transaction may be made.
Bruce A. I. Dingwall CBE, Executive Chairman of Trinity, commented:
“Trinity has exceeded its target to reduce our operating costs by 20% during 2015 year with the like-for-like reduction in pre-tax operating costs being 33%. The hard work of the team has and continues to bring about strong cost efficiencies post the period end. These efforts have enabled our business to maintain a positive cash flow at an operating level despite the backdrop of a dramatically reduced oil price and production levels.
Our current production rates and drastically reduced cost base provides strong testimony to not only the quality of the asset base but also to the resilience, operational expertise and organisational efficiency in coping with a radically reduced budget. This new operating mantra provides a basis for confidence and allows us to continue to explore all financing options to take the Company forward. Across the Onshore, West Coast and East Coast we have an inventory of drilling locations that could enhance production levels on the deployment of capital.
On behalf of the Board, I would like to express our thanks to our various stakeholders and to Trinity’s staff for their continued commitment and hard work to sustain and maximise the portfolio’s value.”
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 Corporate Development
|
Tel: +44 (0)13 1240 3860
|
| RBC Capital Markets (NOMAD & Broker)
Matthew Coakes Daniel Conti
|
Tel: +44 (0) 20 7653 4000 |
| Oil & Gas Advisory
Jakub Brogowski Roland Symonds
|
Tel: +44 (0) 20 7653 4000 |
About Trinity
Trinity is an independent E&P 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 licences and has 2P reserves of 21.8 mmbbls according to management estimates. Trinity is listed on the AIM market of the London Stock Exchange under the ticker TRIN.
Executive Chairman’s Statement
Our Strategy
Trinity’s vision and strategy have remained unchanged since 2005, ensuring that we remain a unique industry player. The Company continues to focus on retaining the integrity of our producing asset base and in adopting better operational practices and efficiencies despite the limited cash resources posed by the macroeconomic environment both locally and internationally.
The Company is seeking funding that will put the Company into a more robust position in order to ensure that we maximise returns from the current asset base. This will be realised by leveraging the benefits from maintaining and growing production in the context of a significantly reduced cost base with break-even levels of below USD 30.0/barrel (realised price) being targeted for the higher cost offshore by the end of 2016. Without such a funding event or refinancing, the Company would be unlikely to be able to continue as a going concern.
The Industry Context
The global oil and gas industry has continued to be negatively impacted by not only dramatically lower oil prices but also the extent of price volatility that has prevailed throughout 2015 and continues into 2016. We have seen costs falling in certain areas of the service sector as suppliers re-adjust prices to remain competitive in a challenging environment. This is expected to help drive down break-even levels across the portfolio.
Conventional equity and debt capital markets have significantly withdrawn liquidity from the sector, leading the industry to be more creative in funding solutions for growth and conserving balance sheets. In support of this, the industry must see greater collaboration. The new commodity price environment has created an opportunity to revise operating practices across the industry. With a clear vision, we can ensure that all players benefit together.
Where we are today and plans for the future
The Company announced on 8 April 2015 that, in light of the receipt of a number of conditional proposals and expressions of interest in relation to certain of the Company’s assets, it was launching a Formal Sales Process (“FSP”) and strategic review of options available 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 or sale of the Company to a third party or a subscription for the Company’s securities by one or more third parties.
In response to falling oil prices, Trinity has focused on sustaining its liquidity position by securing ongoing moratorium extensions on the principal of its senior secured credit facility, disposing of non-core assets and reducing its operational expenditure (“Opex”) and general and administrative (“G&A”) costs in order to reduce breakeven levels. Several initiatives have been made and are underway with further significant cash cost reductions expected to be fully realised during 2016. The Group’s revenues have decreased, due to a fall in production and predominantly as a result of a sharp decline in oil prices impacting the main source of revenue generation. Management has suspended investment in appraisal and development activities, and is continuing to manage its relationships with all stakeholders in an effort to sustain liquidity.
Consistent with the objectives of the strategic review and FSP, our near term objective is to conclude a complete refinancing with a structure that will enable the Company to retire its existing senior debt facilities, significantly reduce trade creditors and provide sufficient additional capital to maximise returns from its assets by growing production and cash flow. The Company is in detailed discussions with a number of interested parties about refinancing the Group and has appointed two specialist refinancing advisors to assist with this process. As drilling and service costs continue to adjust downward, the combination of a profoundly reduced cost base with falling commodity prices transforms the economic potential of the Group’s reserve base.
Subject to the availability of appropriate financing and dependent upon drilling costs and prevailing commodity prices, the Company’s objective is to resume its drilling programme across its asset base from a large inventory of drilling locations.
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.
Our objective remains to deliver value to shareholders and wider stakeholders by sourcing a funding solution to monetise the assets via the strategic review and FSP. However, Trinity shareholders are advised that there can be no certainty that any offers will be made as a result of the FSP, that any sale or other transaction will be concluded, nor as to the terms on which any offer or other transaction may be made.
OPERATIONS REVIEW
During 2015 Trinity’s net production averaged 2,896 bopd.
Onshore operations
Average 2015 net production from the Onshore was 1,600 bopd which made up 55% of total production for the year. There was a 20% reduction in production from 2014 average levels of 2,006 bopd. Current onshore production is derived from the WD-5/6, FZ-2, WD-2, GU-1, WD-13 and WD-14 blocks in southern and south-western Trinidad.
The reduction in production came as a result of swabbing being suspended and significantly reduced capital expenditure on maintenance work. Whilst the focus during 2015 continued to be on arresting base declines and increasing production via workovers and RCPs, although, eight RCPs were budgeted, only one RCP on ER48 was conducted. However, ninety one rate restoring workovers (i.e. COPUs and reactivations) were conducted on the onshore assets in 2015 utilising Trinity owned production Rigs 2 and 6.
East Coast operations
Average 2015 net production from the East Coast was 983 bopd which equated to 34% of total production for the year. There was an 11% reduction in production from 2014 average levels of 1,106 bopd. Current east coast production is derived from the Alpha, Bravo and Delta platforms on the Trintes Field. Despite the cessation of investment, on-going steps to improve operating efficiency have been effective in sustaining production with currently levels ranging between 1,000 – 1,100 bopd. The retention of such stable production levels, at a time when no capital has been deployed towards new drilling, testifies to the technical capability and the knowledge of the operations within Trinity’s team.
The 2015 budgeted production profile consisted of a plan to execute eight workovers as part of base management but only two workovers were conducted during Q4 of 2015; D16 in November and B10X in December. Despite the financial constraints and subsequent reduced workover activity, production remains robust as a result of improved well production management. Trinity continues to look at alternative low cost means of executing workovers. Moving forward, new drilling could further arrest base declines, with a significant inventory of new well locations in place and drill ready.
West Coast operations
Average 2015 net production from the West Coast was 313 bopd which equated to 11% of total production for the year. There was a 36% reduction in production from 2014 average levels of 491 bopd. Currently production is derived from the PGB and BM fields. The 2015 budgeted production profile for BM consisted of a plan to execute two workovers (ABM 150 & ABM 151) to both manage base production and grow overall production from the West Coast. However, due to funding restrictions, neither of the workovers were conducted. These workovers continue to represent opportunities for improving production in the future.
Over and above base declines, production was negatively impacted by compressor issues leading to outages on gas availability for re-injection to support lifting, resulting in periods of intermittent production at the BM field. Production levels were also impacted by the ABM 151 well having been temporarily shut-in during the year and the loss of the associated gas for lifting during that period.
Reserves and Resources
A comprehensive management review of all assets has been concluded and has estimated the current 2P reserves to be 21.8 mmstb at the end of 2015, compared to the year-end 2014 reserve estimate of 25.3 mmstb. This indicated a 3.5 mmstb (14%) decrease versus 2014 which was due to a combination of 2015 production of 1.1 mmstb and year end revisions of 2.4 mmstb. This 2.4 mmstb was not deemed as a downgrade to realisable volumes but rather a reallocation of 2P to the best estimate of contingent resources (“2C”) due to the current economic environment, with the major factor being the application of a significantly reduced crude oil price deck. Subsequent to the reserves review the crude oil price futures price deck is markedly higher.
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.
| 2015 2P Reserves Actual | ||||
| Asset |
31-Dec-14 |
Production |
Revisions |
31-Dec-15 |
| Net Oil Production |
mmstb |
mmstb |
mmstb |
mmstb |
| Onshore |
6.8 |
(0.6) |
(1.8) |
4.5 |
| East Coast |
14.5 |
(0.4) |
1.2 |
15.4 |
| West Coast |
3.9 |
(0.1) |
(1.9) |
2.0 |
| Total |
25.3 |
(1.1) |
(2.4) |
21.8 |
The year-end 2015 net 2C Resource estimate is 19.9 mmstb.
| Asset |
2P Reserves |
2C Resources |
Net Total 2P+2C Reserves and Resources |
|
mmstb |
mmstb |
mmstb |
|
| Onshore |
4.5 |
3.0 |
7.5 |
| East Coast |
15.4 |
15.4 |
30.8 |
| West Coast |
2.0 |
1.5 |
3.5 |
| Total |
21.8 |
19.9 |
41.8 |
TGAL Development
Management resource estimates on the TGAL discovery were upgraded to STOIIP of 150-210 mmbbls (best estimate 186 mmbbls). The existing 3D seismic dataset over the TGAL and Trintes areas was reprocessed to improve data quality using Common Reflection Surface (“CRS”) technology. The results from the application of a leading edge processing technology were transformative in allowing Trinity to use the seismic to better image the subsurface structures of the Trintes and TGAL fields, which included integration of seafloor and shallow seismic data.
After working up the well designs (for drilling and completion) and the topside solution, a draft Field Development Plan (“FDP”) was completed and submitted to the Ministry of Energy and Energy Industries (“MEEI”) in Trinidad at the end of October 2015 for review and comments.
FINANCIAL REVIEW
2015 Results Overview
In 2015 Trinity incurred a USD 7.0 million operating loss and USD 57.9 million loss after tax including USD 17.2 million in exceptional items, USD 6.7 million in finance costs and USD 27.0 million with respect to taxation charges. The following summarises the 2015 financial results:
Financial Results Summary
|
2015 |
2014 |
Δ |
|
| Net production | |||
| Production (bopd) |
2,896 |
3,603 |
(707) |
| YTD production (mmbbls) |
1.1 |
1.3 |
(0.2) |
| Average realised oil price (USD/ bbl) |
45.5 |
85.8 |
(40.3) |
|
USD MM |
USD MM |
USD MM | |
| Statement of Comprehensive Income | |||
| Revenues |
48.2 |
113.5 |
(65.3) |
| Operating expenses |
55.3 |
101.3 |
(46.0) |
| EBITDA |
1.2 |
28.5 |
(27.3) |
| Operating (loss) profit before exceptional items |
(7.0) |
12.2 |
(19.2) |
| Exceptional items |
(17.2) |
(120.9) |
103.7 |
| Exploration costs written off |
— |
(14.9) |
14.9 |
| Operating loss after exceptional items |
(24.3) |
(123.7) |
99.4 |
| Loss before income tax |
(30.9) |
(128.8) |
97.9 |
| Currency translation |
(0.6) |
0.2 |
(0.9) |
| Total Comprehensive loss for the year |
(58.5) |
(141.2) |
82.7 |
|
USD MM |
USD MM |
USD MM |
|
| Statement of Cash Flows | |||
| Cash inflow from operating activities |
2.5 |
11.8 |
(9.3) |
| Net cash outflow from investing activities |
(2.2) |
(16.9) |
14.7 |
| Net cash inflow from financing activities |
(25.2) |
13.0 |
(38.2) |
| Closing cash balance |
8.2 |
33.1 |
(24.9) |
Statement of Comprehensive Income Analysis
Revenues
2015 revenues were USD 48.2 million (2014: USD 113.5 million). This decrease is mainly attributable to a combination of: (i) the decline in average realised oil price of USD 45.5/bbl (2014: USD 85.8/bbl); and (ii) lower production
Operating expenses
Operating expenses were USD 55.3 million (2014: USD 101.3 million) which are made up as follows:
- Royalties of USD 14.6 million (2014: USD 37.0 million)
- Production costs of USD 22.0 million (2014: USD 32.9 million)
- Depreciation, depletion and amortisation amounted to USD 8.2 million (2014: USD 16.4 million)
- General and administrative expense of USD 10.5 million (2014: USD 15.0 million)
Exceptional items (includes asset impairment)
Exceptional items were USD (17.2) million (2014: USD (135.9) million) inclusive of USD 6.4 million written off costs in relation to Blocks 1(a) & 1(b), USD 6.2 million relating to impairment of property, plant and equipment, receivables and inventory, USD 1.9 million relating to provision for restructuring and USD 2.7 million relating to loss on certain disposals and fees relating to the FSP.
See Note. 28 to Consolidated Financial Statements – Exceptional items for further details.
The Group’s operating loss after exceptional items was USD 24.3 million (2014: USD 123.7 million).
Net Finance Costs
In 2015, finance costs amounted to USD 6.7 million (2014: USD 5.2 million), which is made up of the unwinding of the decommissioning liability USD 1.5 million (2014: USD 1.2 million) and combined interest related to the fully drawn (USD 20.0 million & USD 25.0 million) Citibank loans and interest accrued on outstanding taxes of USD 5.2 million (2014: USD 4.0 million).
Taxation Charge
The tax charge for 2015 was USD 27.0 million (2014: USD 12.7 million), and its components are described below.
- Supplemental Petroleum Tax (SPT): The SPT charge for 2015 amounted to USD 1.8 million which is still payable (2014: USD 14.9 million).
- Petroleum Profits Tax (PPT): The PPT charge for the year ended in a credit of USD 0.2 million (2014: USD 1.1 million).
- Corporation tax (CT): The CT for the year amounted to USD 0.6 million (2014: USD 2.2 million)
- Deferred tax (DT): The DT for the year as a result of the derecognising of a large portion of the Group’s deferred tax asset from the Statement of Financial Positions at the end of 2015, amounted to a charge of USD 24.7 million (2014: USD 5.5 million).
Consolidated Statement of Cash Flows Analysis
Cash inflow from operating activities
Cash inflow from operating activities was USD 2.5 million (2014: USD 11.8 million), following adjustments for:
- Operating activities of USD 1.1 million inflow (2014: USD 28.5 million inflow)
- Changes in working capital outflow of USD 0.2 million (2014: outflow of USD 12.6 million)
- Taxation paid of USD 0.1 million (2014: USD 3.8 million).
Cash outflow from investing activities
Cash outflow from investing activities was USD 2.2 million (2014: USD 16.9 million), and is made up of the following:
- Exploration and evaluation assets: The majority of expenditure of USD 1.2 million in 2015 relates to the TGAL field development.
- Property plant and equipment: expenditure on property, plant and equipment for the year was USD 1.0 million (2014: USD 11.9 million). This includes mainly infrastructure upgrades.
Cash outflow from financing activities
Cash outflow from financing activities was USD 25.1 million (2014: USD 13.0 million) as a result of debt repayment and finance costs:
- Repayment of borrowings of USD 20.0 million (2014: USD 8.0 million) includes principal repayment toward the Citibank USD 25.0 million loan
- Payment of loan finance costs of USD 5.2 million (2014: USD 4.0 million)
See Note15 to the Consolidated Financial Statements- Borrowings for further details.
Accounting Policies
AIM listed companies are required to comply with the European regulation to report consolidated statements that conform to International Financial Reporting Standards (“IFRS”). The Group’s significant accounting policies and details of the significant accounting judgements and critical accounting estimates are disclosed within the notes to the financial statements. The Group has not made any changes to its accounting policies in the year ended 31 December 2015.
Citibank Loan Repayment
Trinity continues to have pro-active discussions with Citibank to manage the repayment of the combined USD 13.0 million debt balance with ongoing moratoriums.
Events Since Year End
- Asset Sale Activity
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 USD 20.8 million. The Touchstone SPA was subject to various conditions precedent and had a backstop date of 13 March 2016. The backstop date expired without all of the conditions precedent being satisfied. As a result, the sale of the Blocks to Touchstone did not complete with the deposit of USD 2.08 million, which had been held in escrow, being subsequently released to Touchstone (this was not included in Trinity’s cash balances).
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 USD 2.8 million (the “Guapo Transaction”) has been completed. All the conditions precedent for the Guapo Transaction have been satisfied including standard regulatory approvals, which were granted on 15 April 2016. The transaction was subsequently finalised with the closure of the cash settlement on 25 May 2016. The cash proceeds will be used predominantly by Trinity for working capital purposes.
- Funding and Refinancing
On 14 March 2015 Trinity announced that the Company had engaged two specialist refinancing advisers, Imperial Capital of New York and Cantor Fitzgerald of London. Management is encouraged by the interest levels from several potential investors. Trinity’s 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. As part of the refinancing deal it is expected that there would have to be significant discounts agreed on the outstanding senior debt and with its creditors. Without such a refinancing, the Group and Company would be unlikely to be able to continue as a going concern.