25th May 2016 11:05
LONDON (Alliance News) - Trinity Exploration & Production PLC failed to impress shareholders on Wednesday after admitting it still hasn't managed to refinance the business after more than a year of trying as the company remained firmly in the red in 2015.
Trinity shares were down 12% to 2.66 pence per share on Wednesday and are down 37% since the start of 2016.
The company, with operations in Trinidad and Tobago, has had over 30 extensions from its lender Citibank for the repayments due under its USD13.0 million of outstanding debt and the current deadline expires this Friday.
Citibank has been supportive of the company whilst it conducts its strategic review which includes a formal sales process that allows interested companies to propose offers for the business. Trinity's near-term aim is to refinance the company so it can settle its debt and reduce its trade creditors whilst providing capital to allow further growth to production and cashflow.
Trinity said it is holding "detailed discussions" with a number of interested parties about refinancing the group - but shareholders will be wary as it has been over a year since the strategic review was launched with little progress made since then.
Trinity said it was holding talks with parties as far back as early April 2015 as its production began to decline at a time when lower oil prices began to bite as the company recognised the need for further funding to grow its assets.
However, Trinity has not been idle. The company managed to sell surplus tubing and casing last year, but that was at a loss, and offloaded the Guapo-1 block for USD2.8 million in a deal that is expected to be formally completed on Wednesday.
The company also made a U-turn on one deal it had signed after deciding to retain five licenses that it had agreed to sell to Touchstone Exploration Inc for USD20.8 million. Trinity said the five onshore assets have the lowest operating costs within its portfolio and therefore should be retained.
It should be noted, however, that the deal with Touchstone collapsed because all of the conditions that needed to be met were not satisfied before the deadline in March rather than Trinity pulling out of the deal.
The combination of declining production and lower oil prices was made evident on Wednesday when Trinity reported its 2015 results that showed the business remained firmly in the red during 2015.
The company booked a USD30.9 million pretax loss in the 2015, and although that is a large loss it is significantly narrower than the USD128.8 million loss reported in 2014.
Although revenue more than halved year-on-year, the main cause for the narrower loss was a significant reduction in impairments and write-offs to USD17.2 million in 2015 compared to the USD120.9 million last year. An exploration write-off totalling USD14.9 million in 2014 also didn't repeat itself in the most recent year.
Notably, prior to those exceptional items and write-offs being taken into account, Trinity still made an operating loss of USD7.0 million in 2015, swinging from a USD12.2 million profit last year as a reduction in costs failed to offset the hefty decline in revenue.
Total revenue, most of which is derived from crude oil sales, plummeted to USD48.2 million in 2015 from USD113.3 million in 2014. The fall caused the amount of royalties paid by Trinity to fall alongside its operating expenses and the company also took steps to reduce its administrative costs by around a third whilst depreciation and amortisation costs nearly halved.
Once all of those costs are combined, total operating expenses amounted to USD55.3 million, outstripping the revenue for 2015. Although those costs were much higher in 2014 at USD101.3 million, revenue still allowed Trinity to book an operating profit last year.
The cause of the 58% fall in revenue was clear - a combination of lower production and lower oil prices - as production dropped 20% year-on-year and the average oil price declined by almost 47%.
Production in the year averaged 2,896 barrels of oil per day compared to the 3,603 barrels being produced daily in 2014 as oil prices averaged USD45.5 per barrel compared to USD85.8 per barrel in 2014 - with oil prices beginning to decline in the middle of 2014.
With uncertainty over the company's ability to secure funding and with exploration and development work suspended until that funding is secured, shareholders will be wary that production looks more likely to continue declining this year whilst oil prices continue to remain under pressure.
Trinity said production in 2016 will average 2,500 to 2,800 barrels of oil per day, stating the "lower case" scenario will be focused on a "managed decline" whilst the "uppercase" scenario will allow Trinity to begin conducting work to rectify its production issues by completing the desired refinancing.
If Trinity can find some funding, it claims to have a "large inventory of drilling locations" to start drilling across its existing asset base lying onshore Trinidad and offshore the east and west coast of the island. Trinity also has the Pletmos exploration block in South Africa, but this is not core to the company, especially at this current time.
The onshore assets contributed around 55% of Trinity's overall production in the year whilst its operations off the east coast contributed 34% of overall production, leaving the west coast to contribute the remaining 11%.
Importantly, the decline in production is stemming from all three areas and not just one asset or region. Onshore production fell 20% year-on-year in 2015 whilst production from the east and west coasts declined 11% and 36% year-on-year, respectively.
The lack of drilling activity and maintenance work is not only hitting current production but causing its reserves and resources to fall as Trinity is unable to replenish the oil it produces though development and exploration work.
The overall production in 2015 left Trinity with total 2P reserves of 21.8 million barrels at the end of the year compared to the 25.3 million barrels at the end of 2014. Notably, around three-quarters of those reserves at the end of the year lie within its east coast assets, with its onshore assets only holding 2P reserves of 4.5 million barrels whilst the west coast operations are left with reserves of 2.0 million barrels.
Resources are even lower, with 2C resources standing at 19.9 million barrels at the end of 2015 - again mainly lying within the east coast operations.
Although visibility going forward is not clear, Trinity will carry on optimising areas of the business that it can whilst continuing with its review. Trinity managed to reduce operating expenditure by a third during 2015, but that would have been partially helped by the fall in production, and reduced general and administrative costs by 30%.
This year, Trinity aims to continue reducing those costs whilst attempting to bring down the breakeven costs for its onshore fields to below USD15 per barrel by the end of 2016 from the USD24 per barrel in 2015. Trinity wants to get the breakeven cost for its offshore operations below USD30 per barrel by the end of 2016.
The retention of the five onshore assets that were to be sold to Touchstone will assist Trinity in its efforts to reduce breakeven costs this year. To put those targets into perspective, Brent was trading at USD49 per barrel on Wednesday.
"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," said Executive Chairman Bruce Dingwall.
"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," he added.
By Joshua Warner; [email protected]; @JoshAlliance
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