Trinidad: #Range versus #Trinity.

A number of companies are focusing on Trinidad in 2014. The government of Trinidad and Tobago recently announced changes to support oil companies, introducing a progressive package to ensure that the mature oil industry remains active and that production increases. One company focusing on the potential in Trinidad is good old Range Resources (RRL) which attracts about 400 posts a week on the LSE Bulletin board. Another company I like, called Trinity Exploration (TRIN) has had 100 posts all year! So one is clearly not on the radar....yet. But what are the relative merits of each? I thought I'd compare the two as Range attracts so many PI’s but there seems to be a lot of frustration with their lack of progress in Trinidad. I've been in Range in the past, but bought into Trinity following some research I did click here to read this and I find it interesting that Range gets so much attention whilst other perfectly good oil companies operating in the same place go almost unnoticed. I suppose I may be biased, but thought I’d try and compare Range’s Trinidad focus with Trinity’s. What are the differences and who has the upper hand?

Range Resources : Last week we heard that Range has just received environmental approval for up to 40 wells in Trinidad in 2014. They have been involved in Trinidad for about 2 years and state that they are targeting production increases of up to 4000bopd by the end of 2014 and 9000bopd by the end of 2015 (from current c.800 bopd). They own 100% of three license blocks (Morne Diablo, Beach Marcelle and South Quarry) close to the south coast of Trinidad. They have over 250 employees there as well as their own in-house drilling capability – they own 6 exploration rigs and 3 production rigs. They have 1P + 2P reserves of 20.2m barrels and unrisked prospective low, best and high resource potential of 8.1m, 40.5m and 81m barrels respectively. Their plan is to exploit their 1P undeveloped reserves over the next 3 years by conventional (drilling) and unconventional (waterflooding) methods. They hope to move 2P and 3P reserves to 1P category.

Trinity Exploration has been around for 8 years and is the largest oil exploration and production company in Trinidad. They own 100% of 10 blocks and 70% of one other. They are currently producing somewhere over 4000bopd (as of September 2013, awaiting end of year production figures) and have 2P reserves of 49m barrels (following news this week that they have increased their stake in the producing Trintes field to 100%). They have just made a significant discovery of oil in their Galeota licence which could contain around 32m barrels gross prospective resources (Trinity 65% interest). Trinity’s plan is to develop production further using existing facilities with a focus on workovers of existing wells, together with new exploration by drilling multiple conventional exploration wells onshore and offshore.

Finding some of the key stats has proved tricky, especially so for Range Resources who have fingers in so many pies so please accept these in good faith, there could be errors or omissions from the following.

All figs from annual reports / company web sites / most recent RNS’	Range Resources	Trinity Exploration
Market Capitalisation	£41.8m	£132m
Shares in issue	c. 3.7 billion	c. 94.7 million
Trinidad 1P+2P Reserves	20.2m	49m
Trinidad Contingent Resources	81m	99.7m
Other exploration upside	Georgia 45% interest with 3P of 203Bcf gas Puntland 20% interest in 2 licences – estimated 3.2bn barrels of undiscovered OIP. Colombia 65% interest in license with c5.5m barrels undiscovered OIP. Guatemala (Citation Resources) 20% strategic stake with 2P of 0.74m and 6.4m contingent resources. (from most recent RNS)	South Africa 100% interest with potential for up to 2.7Tcf new unrisked prospective resources.
Current Production	c. 800bopd (from June 2013 Edison report)	c. 4000bopd (from company corporate update Sept 2013)
Revenue	12 months ending June 2013 US$27m (from Annual Report)	6 months ending June 2013 US$54.4m
Operating Profit before tax and exceptional items	12 months ending June 2013 Loss of US$17.7m (from Annual Report)	6 months ending June 2013 Profit of US$9.5m
Basic Earnings per share	12 months ending June 2013 Loss of US$0.95c per share (from Annual Report)	Six months ending June 2013 Profit of US$0.92c per share
Management Background	Mostly banking, accountancy and institutional capital raising backgrounds. A number of current directorships are listed for Peter Landau, including RRL, Black Mountain Resources, Continental Coal, NKWE Platinum. (from company web site)	Many board members have significant board experience growing energy companies to billion dollar enterprises, notably Venture Production sold to Centrica (£1.3bn), Burren Energy sold to Eni (£1.7bn) and Dana sold to KNOC (£1.9bn)

Trying to be impartial I see Trinity as a much safer bet than Range for 2014. I can see that if Range were to truly leverage their potential assets the market cap could be well north of current levels. But my concern is that in my opinion they have such a wide spread of assets both geographically and technically that I worry about how they can give enough focus on any of them to really drive the value add that is required. Their recent proposed merger with IOP seems to be treading water and is rife for adding further diversification away from a core focus. Following the first round of unsuccessful drilling in Somalia (hats off to them that it happened at all), Puntland will likely be quiet for a year or two now – the seismic surveys will take time and cost before any possible further drilling. Georgia seems to be mothballed - it’s months since they released any news or concrete development plans. The Texas sale is farcical it’s been over 18 months and still no sign of it completing. There is the Colombian interest which seems to be attractive, but needs significant funds to achieve. So that seems to leave most of Range’s value and potential upside in the next year or two coming from Trinidad. 

Which is back to where I started..... If an investment in a Trinidad focused oil company is of interest to you, then what companies are there other than Range who could provide attractive upside without the inherent uncertainty over delivering what they promise and without seeing ongoing and value destroying dilution . Trinity is one such company where I believe there is a real focus on their core business. And where the CEO has publically stated that they are committed to growth without dilution if at all possible (and still have only 97m shares in issue).

Following Trinity’s recent successful Galeota oil discovery, they are currently drilling a second reasonably large potential prospect – the El Dorado prospect on their producing Brighton Marine Field. This is targeting gross unrisked P50 prospective resources of 13m barrels of oil with a chance of success estimated at 51%. Results should be through approximately 35 days from spud which was 6^th December, so we should be hearing by the middle of January.

 

Fingers crossed for a good start to 2014 and in any case a very Happy New Year to all of you.

References:

My previous blog on Trinity http://timpronkster.blogspot.co.uk/2013/11/trin-trinity-looks-well-set-for-2014.html

Edison Report on Range, page 4 refers to Trinidad: : http://www.rangeresources.com.au/framework/documents/displaydocument.asp?doc=1070

Video of Trinity CEO talking about growth and includes comment about avoiding dilution http://www.directorstalk.com/video-monty-pemberton-ceo-of-trinity-exploration-production/

Directors Talk coverage of interview with Trinity CEO http://www.directorstalk.com/joel-monty-pemberton-trinity-exploration-and-production/