- 2022 underlying operating profit up 72 per cent to $10mn before $6mn impairment charge to reflect weaker oil prices
- Stable net sales of 2,975 barrels of oil per day (bopd)
- Oil price weak, but there are near-term company-specific share price drivers
- Introduction of dividend and share buybacks
Trinity Exploration & Production (TRIN:78p), an oil and gas explorer and producer focused on Trinidad and Tobago, delivered annual results in line with analysts' estimates.
However, ongoing weakness in global oil prices, coupled with lower projected current-year production than analysts had predicted at the time of last autumn’s interim results, mean that 2023 operating profit post supplemental petroleum tax (SPT) is only expected to edge up to $10.4mn on a fifth lower revenue of $73.8mn. Forecasts from house broker Cenkos Securities factor in 3 per cent higher production of 3,071 bopd, but a 23 per cent fall in the realised West Texas Intermediate (WTI) oil price of $65.8 per barrel.
The flipside is that the lower oil price is expected to slash Trinity’s SPT charge from $9mn to $6.3mn, while all sales will be unhedged this year, hence why operating profits are expected to hold up despite the weaker oil price environment. Furthermore, the absence of last year's $6mn impairment charge means that reported pre-tax profit is forecast to surge from $2.5mn to $9mn.
In the first quarter of 2023, average realised oil prices fell by 10 per cent to $67.9 per barrel compared with the final quarter of 2022, while well-documented industry inflationary pressures meant that operating break-even increased almost 13 per cent to $35.4 per barrel. That said, the group remains highly profitable and cash generative, hence why the board plans to declare a dividend of 1.5p a share for the 2023 financial year and has sanctioned three NAV-per-share-accretive share buy-back programmes since last autumn. Importantly, there are potential near-term share price catalysts to drive a rerating.
Share price triggers on the horizon
Firstly, Trinity is at an inflection point as it progresses its Jacobin well, the first of nine Hummingbird deeper prospects across the group’s existing Palo Seco onshore acreage. It is expected to reach the primary reservoir target before the end of the month, before being tested and brought into production. It offers significant growth potential, targeting virgin-pressured reservoirs with higher production rates than conventional wells, meaningful production increases and shorter payback cycles.
Secondly, Trinity is also looking to strengthen its footprint across the Palo Seco play by extending into the adjacent Buenos Ayres block to the west. Having been awarded the license this week, developing the acreage will enable Trinity to benefit from better commercial and fiscal terms than from its existing lease operatorship agreements.
Thirdly, having paused the farm-out process a year ago on the offshore Galeota block, the directors aim to finalise development options by the fourth quarter of 2023 with a view to improving the capital efficiency and payback timelines of the project.
Potential for positive newsflow is certainly not being factored into the current price, which has declined 29 per cent since the interim results ('Targeting production growth and cash returns', 21 September 2022). That’s because the £30mn market capitalisation company is priced on less than four times Cenkos’ post-tax profit estimate for the current year. Moreover, based on its 18mn barrels of 2P reserves alone, Trinity is valued at $2.10 per barrel, a huge discount to sector peers, and $0.57 per barrel once you include 2C reserves. Recovery buy.
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