- 290ft-plus net oil play in the Jacobin well
- First production testing next month
- Discovery de-risks eight further drill-ready prospects
- Share price surges 27 per cent
Trinity Exploration & Production (TRIN:94.5p), an oil and gas explorer and producer focused on Trinidad and Tobago, has encountered significant reservoir and hydrocarbon accumulations in its Jacobin-1 Oil discovery within the prolific Palo Seco onshore acreage.
Having drilled to a depth of 10,021 feet (ft), one of the deepest wells drilled in recent times in the area, the Jacobin exploration well encountered more than 290ft of net oil, of which 63ft was in the deeper virgin-pressure reservoir targets. The well is now being prepared for a series of production tests to prove the deliverability of the reservoirs.
It is a significant development for the £36.3mn market capitalisation company because it validates both the structural and stratigraphic model, demonstrating the existence of a deeper play across Trinity's entire Palo Seco area, and the recently awarded Buenos Ayres block.
By accessing virgin-pressure reservoirs, the well is expected to deliver higher initial production rates than conventional wells, thus improving the economic returns and cash payback multiples compared with a shallow-angle well. A typical deeper target has a 55 per cent chance of finding one to five million barrels of oil in place with an upside potential of more than 10mn barrels, according to analyst James McCormack at house broker Cenkos Securities. That’s material for a company with 18mn barrels of 2P reserves and 48.9mn barrels of 2C reserves. Data from the well should also help de-risk the remaining eight drill-ready prospects across Trinity’s Hummingbird acreage.
Free ride on exploration programme
Importantly, upside from Trinity’s exploration prospects is in the price for free. That’s because the group’s existing production delivered cash profit of $4.5mn (£3.5mn) from 2,824 barrels of oil per day (bopd) of average sales volumes in the second quarter this year with the average realised oil price of $63.70 per barrel well above operating break-even of $34.80. Cenkos is pencilling in full-year cash profit of $21.6mn and operating profit of $7.1mn, perhaps a conservative forecast given that Trinity’s production is now completely unhedged and the West Texas Intermediate (WTI) benchmark oil price has surged from $70.45 to $82 per barrel since 30 June 2023.
Trinity also has cash of $11.3mn (£8.8mn) and borrowings of $2mn, which exactly matches a VAT receivable balance. This means the company is being valued on a bargain basement multiple of five times operating profit to enterprise valuation. Its oil reserves are being chronically undervalued, too. Even if you ignore the contingent reserves, 2P reserves are in the price for $1.95 per barrel, a massive discount to peers.
There are other potential share price catalysts on the horizon too. These include next month’s update on the offshore Galeota block concept screening study being undertaken by oil services group Petrofac (PFC). This will help the directors finalise development options with a view to improving the capital efficiency and payback timelines of a project with 46.1mn barrels of 2P and 2C reserves.
Trinity’s share price is well ahead of my last buy call at 78p (‘An oil play with huge recovery potential’ 12 June 2023), but still trades on an unwarranted discount to Cenkos’ 203p fair valuation. Buy.
