The Oil Man: Trinity Exploration, Providence Resources, Frontera Resources

WTI $71.14 +$2.08, Brent $77.21 +$2.36, Diff -$6.07 +28c, NG $2.74 n/c

Yesterday’s price move was a direct result of the US move on sanctions against Iran, earlier falls had been in the hope that they would not happen or might have been watered down, not so.

I have had an incredible post bag on this matter, very strong views on both sides and in all cases well argued and I have been advised to show a little more respect into the bargain. There is no lack of respect from me, just the occasional nickname here and there.

The next 180 days will be crucial as Iran and its trading partners decide, during that grace period how to deal with the situation, one thing is for certain, the US is serious about this. Commentators have suggested that the OPEC/Non-OPEC agreement might fall as extra demand is perceived, I suspect not.

Whilst the Saudis have said that the group, including the Russians, will help to accommodate the market, there is little doubt that they would prefer it tighter for choice.

Finally, yesterday the EIA were busy, the STEO [short-term energy outlook] came out, but was virtually out of date before it hit the newstands and, whilst the global demand numbers were of interest, all will change if the current scenario plays out as expected.

A higher price will start to hit demand and those numbers will fall albeit lagged, it will also increase production from those not in the magic circle and thus US production may rise.

The EIA also had inventory stats out as well which pushed the oil price even higher, a 2.2 million draw in crude was higher than expected as was a 2.2 million draw in gasoline and a 3.8 million draw in distillates. With a fall in refinery utilisation and another big rise in US demand those numbers were perceived to be fiery only 18 days away from the driving season.

Trinity Exploration & Production

Finals from Trinity (TRIN) which prove what a game changing year last year was for the company. I normally disregard figures as they are historic and the market should be concentrating on the here and now, but for Trinity they are a perfect illustration of how the turnaround has gone and just how good the company looks now. Operating earnings are up 77% to $11 million (6.2 million) and operating margins are 24.3% (17.6%), which is mighty impressive even for a strong margin player like Trinity.

Total 2P reserves are up from 21.25 mmstb to 23.21 million stock tank barrels of oil (mmstb) whilst 2C numbers are better, rising 14% to 23.98 mmstb.

All this had a positive effect on the company’s cash and debt position, y/e net cash was $0.1 million ( 38.6 million), strongly building the balance sheet despite accelerated payments to both the BIR and the MEEI with only $5.9 million of debt balances at the year end.

All this was done with a massive increase of operational delivery, 37 RCP’s (0) and 97 workovers (63) were done, and included reactivating idle wells and the resumption of swabbing activities. This meant that 2H production was up by 10% against the first half of the year.

Having said all that the company has moved fast since the year end and production is up again, at the end of the 1st quarter it was 2,721 b/d with full year guidance of 2,800-3,000 b/d.

The company has recommenced onshore drilling with two new infill wells in Q1, which should come onto production in Q2 and the plan is to continue to deliver faster production growth over “a largely fixed operating cost base”. This has the twin advantages of getting higher netbacks with “robust” cash conversion and delivers up a near perfect combination of growing production with higher operating margins.

Trinity is being run enormously efficiently and, with all these operational successes driving the profit, cash flow and margins, the scope for finishing the debt programme way ahead of schedule is extremely likely.

At which stage management will have more funds to invest in what is one of the most efficient operating models in the industry, quite a thought given how well the company has done whilst times were hard…

Providence Resources

For Providence (PVR) these results really were meaningless and, despite a big duster, the talents of the management to pull off farm-outs that left them carried and in the money at the year end is inspiring. This is true of the Total farm-in to LO 16/17 as is the Barryroe deal after the year end, which had been awaited for some years.

The bringing in of the APEC/COSL/JIC partners to Barryroe may have been late, but looks like a very good deal indeed, and the asset is properly back in play as it should have been a while ago. With the drilling of three wells next year (due to the long lead time for approvals) and maybe more, plus a great wall of money to play with, the Providence team should be delighted.

There is still €19.6 million in cash in the balance sheet and, although most operational activity is for next year, this means that much work is being done and the outlook is still very promising albeit slightly in the distance.

Frontera Resources

Last night, I attended the shareholder update meeting for Frontera Resources (FRR). A large audience of shareholders heard another presentation that continues to offer better news from Georgia. Whilst they would to have liked to have more news from Taribani wells and, of course, from Ud-2 these are still drilling, testing or being stimulated so more news before long I guess.

And finally…

Last night was the turn of the Terriers to pull a rabbit from the hat as with a 1-1 draw at Stamford Bridge they avoided relegation and will, like all the other promoted sides, play in the Prem next year.

It also means a shoot out between Chelski and the HubCap Stealers for the last Champions League spot after Spurs won last night. Tonight the last ‘game in hand’ is the visit of the Red Devils to the London Stadium to play the Hammers, lucky that this is a dead rubber now…

Malcolm Graham-Wood is an independent oil industry expert and freelance contributor, not a direct employee of Interactive Investor.

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