Malcy’s Blog – Oil price, Trinity, Solo, Cairn, GKP & finally

WTI $57.85 +$1.33, Brent $62.59 +$1.05, Diff -$4.74 -28c, NG $2.59 +9c

By Malcolm Graham-Wood

Oil price

Oil is on the up again and primarily to do with ABS, the moniker for the new Saudi Oil Minister who has made it clear that the Kingdom is ‘determined to achieve higher prices’ which is surely linked to the Aramco sale. The JMMC meeting of the cartel is on Thursday which might yield a few titbits of information.

Little else matters but the three reporting agencies will deliver monthly’s at the end of the week and will give some indication on the two important numbers, global demand and US production.

Trinity Exploration & Production

Today’s interims are titled ‘strong cash flow and operating margins’ which is an excellent way of summing up these excellent results, and the second half looks like it is going to be better. Production of 3,008 bopd was up 9% on ’18 and will rise in the second half with the resumption of onshore drilling. One of Trinity’s strengths is a very careful management of opex and capex as well of course as effective overall cost control all of which leads to strong cash flow.

EBITDA increased 20% which is a testament to the strong management across the board, a 7% increase in revenue on a 9% increase in production shows for itself despite the oil price drop and quite how profitable the company is. Conversion to cash is also exceptional at over 90% leaving a cash position of $17.8m with no debt. There is no whingeing about SPT, the company is being managed across a broad range of oil prices and the staff at TRIN are constantly being retrained for new tasks.

Production in the 2nd half has already benefited from the 1st infill well and the second well is expected imminently, this of course is the company’s first High Angle Well which has been highly successful. The ultimate success of this well will take some time to fully assess and Trinity is not going to hurry the process, with a different methodology from a traditional well data will be assessed over 3-4 months. As a result the 2H campaign is slated as ‘up to 8 wells’ which may include another HAW but will be done in the right and proper times. Offshore, Galeota continues to move on with discussions between TRIN and Heritage to move this forward.

The major presentation is this evening and I will attend that so should be able to add a good deal more after that, but I am expecting to see detailed analysis of the company’s DNA. In other words it is a full cycle company that is ahead of many other companies in the space. This can be seen by the SCADA system, an approach with Weatherford for production optimisation where, linked to the cloud, data is reported back every 12 minutes and accordingly speeds up or slows down flow. This digital system cuts opex costs, increases production and reserves and again increases profitability.

Trinity can be described as a highly profitable oil company at pretty much any price, it has flexibility to modernise and deliver under most scenarios and at a very high margin, accordingly it is not wrong to say that these results were not by chance, continued investment leads to growth in the production and hence cash flow. I will add more after the presentation but Trinity is in a very good place, it is the share price that is criminally low for a well funded, high margin growth business with significant upside.

Solo Oil

Solo has announced the disposal of its Burj investment to a partner for a nominal £1 which means that the company relinquishes any future costs associated with the project. Executive Chairman Alastair Ferguson  stated that ‘it may be a nominal consideration but the symbolic relevance is material’. For shareholders it is important that the board continue to rationalise the portfolio through divestment of all non-core assets and to ‘focus our attention on building the company going forward around cash flow from high quality assets in low-risk jurisdictions’.

I have said before that Solo is now being run by a high quality team of oil industry executives who are determined to change the company in many ways. I know that they are particularly keen to make acquisitions as well as disposals and I’m sure that these will occur before long.

Cairn Energy

The interims today were all about a first class operational performance with Catcher delivering  99% operating efficiency and Kraken improving. SNE is now moving fast to the development stage and whilst Cairn aren’t planning to be holding quite such a big stake in the future it will remain a substantial part of the portfolio as far as I understand. Elsewhere going according to plan despite sparse good news with the drillbit.

Gulf Keystone Petroleum

Revenues of $95.6m on production of 29,362 bopd (31,861) were below expectations although for generally good reasons. An assortment of maintenance issues and installation of new facilities mean that guidance is reduced to 30-33/- b/d from 32-38. The substantial cash flow however covers a sizeable programme of capex as well as the dividend and a resumption of the buy-back which provide solid backing for the shares.

With the Shaikan production target of 55/- b/d still on track for 1H 2020 the upside is substantial and there is more to come further out. Will report back after the con call and of course there is a visit later in the month.

And finally…

The prognosis for Scotland and Northern Ireland proved correct although both were playing the strongest in their groups. Tonight England play Kosovo at St Mary’s, they don’t even get to see fortress Wembley.


By Malcolm Graham-Wood

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