Trinity Exploration’s ( LON:TRIN) Investec’s Gallagher explains: “Well productivity is critical here.”
strong production profile does not quite tally with its modest £100mln market capitalisation.
Oil investors usually flock to AIM to back high-risk minnows that have a small chance of striking oil; Trinity though, as an established name with production – and importantly profits – under its belt is not in that bracket.
The Trinidad & Tobago-focused group was among the most active oil drillers in the Caribbean nation last year, boosting production by 23% from assets it took over when it reversed into Bayfield Energy.
The company finished 2013 with a production rate of 4,200 barrels of oil equivalent per day, helping it to revenues of US$123.8mln, up from US$77.7mln in 2012, while earnings improved to US$34.8mln from US$24.1mln the year before.
Cash inflows increased sharply to US$17mln from US$3.7mln.
While the fanatical punters that dominate the bulletin boards may not be predicting huge gains for the company, Trinity has steadily attracted admirers from other voices in the investment community.
In fact, all the analysts covering the stock predict the share price, currently 105p, will soar.
New York-based Jefferies has a 190p target price on the shares, and says more of the same is needed this year to hit that goal.
“Trading at just US$3.6/boe [barrels of oil equivalent] for 49mmb [million barrels] of 2P reserves (vs $21/boe sector average), Trinity can grow in value and status through continued production delivery in 2014, which would derisk those 2P [proved + probable] reserves,” said analyst Mark Wilson.
He points out that it was a difficult first year for the group, in which it joined the AIM market in February 2013.
Trinity took operational control at that time and had originally hoped to finish the year at 5,000 barrels per day, but challenges – mainly power issues and drilling delays at the Trintes oilfield – caused a revision at the half-year mark.
Nevertheless, it beat Jefferies’ operational expectations, averaging more barrels than the broker had anticipated.
Investec is even more bullish about prospects, claiming that a 250p target price is more suitable.
The company ended the year with US$25.1mln in cash, which was in line with the broker’s expectations, as was the operational performance.
“We continue to view Trinity’s three Trinidad and Tobago assets as materially undervalued, trading at over a 50% discount to our 250p sum of the parts-derived RENAV [risked exploration net asset value],” said Investec’s oil analyst Brian Gallagher.
Jefferies and Investec, along with RBC Capital, which has a 200p target on Trinity, are eyeing up the full result from the key B9-X well on the Trintes oilfield, which is expected in early May and could add 250-300 barrels a day to production.
There was no announcement on the well with the latest update, but it is thought it is close to its target depth.
As Investec’s Gallagher explains: “Well productivity is critical here.”
The shares have struggled somewhat this year, but a positive result here could inject life back into them. |
