- Maiden interim dividend of 0.5p a share
- Net cash of $9.3mn (20p)
- Priced on two times operating profit to enterprise valuation
First half results from Trinity Exploration & Production (TRIN: 81p), an oil and gas explorer and producer focused on Trinidad and Tobago, were in line with guidance given in the second quarter trading update (‘An oil stock that could double in value’, 7 August 2023).
Although the average realised oil price fell 25 per cent to $65.20 per barrel on slightly lower average net sales of 2,861 barrels of oil per day (bopd) in the first half, there was a silver lining as Trinity saved $1.8mn on Supplementary Petroleum Tax (SPT). The eye-catching sevenfold increase in operating profit to $2.6mn largely reflects the fact that $3.5mn of non-cash charges held back the previous half year result. Operating profit before non-cash items and SPT actually fell from $12.8mn to $10.4mn, a reflection of the weaker oil price environment in the first half of 2023.
However, oil prices have surged since the half-year end (30 June 2023) with Brent Crude averaging $79 a barrel in July and $85 a barrel in August. It is now trading at $93 a barrel. That’s worth bearing in mind given that Trinity’s production is completely unhedged and has an operating break-even of only $34.50 a barrel.
The second half will also benefit from initial production from Trinity’s recent Jacobin-1 Oil discovery within the prolific Palo Seco onshore acreage. More importantly, it validates the structural and stratigraphic model, demonstrating the existence of a deeper play across the entire Palo Seco area and the Buenos Ayres block, a cornerstone of Trinity’s revitalised onshore acreage, says analyst James McCormack at house broker Cavendish. Data from the well not only de-risks Trinity's other drill-ready prospects, but virgin-pressure reservoirs deliver higher initial production rates compared with conventional wells, too.
McCormack also highlights the imminent conclusion of the concept screening study being undertaken by oil services group Petrofac (PFC) on Trinity’s offshore Galeota block. A lower-cost, flexible development solution should reduce development and payback timeframes across a block that contains 46.1mn barrels of 2P and 2C reserves.
To put the value on offer into perspective, strip out net cash of $9.3mn (£7.7mn) from Trinity’s market capitalisation of £31.4mn and the company is valued on two times underlying operating profit (pre-SPT) with its 2P reserves in the price for a bargain basement $1.60 a barrel. Buy.
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