RBC Europe Ltd has said in an Equity Research note that the opportunity to buy Trinity Exploration and Production plc (TRIN) at a discount on the London Stock Exchange (LSE) is now. The Guardian received the note by e-mail this week (Feb 26). “Despite making the 50-115 million barrels (mmbbl) TGAL discovery, Trinity is trading at a 15 per cent discount to core value. We see this as an opportunity as Trinity progresses the discovery towards field development plan (FDP) submission and continues infill drilling on the Trintes field through 2014,” RBC analysts Nathan Piper and others said in the note. Trinity has provided an extensive operational update highlighting progress through 2013 across its Trinidadian portfolio and outlining the infill drilling focused capital expenditure plan in 2014. The company made the material TGAL discovery (end 2013) that could increase reserves by more than 50 per cent.
“Given the stock is trading at a 15 per cent discount to core net asset value (NAV)—producing assets minus financials—we recommend taking a position ahead of low risk news flow this year and reiterate our Outperform rating maintaining our 200 pence per share price target,” RBC said. RBC said Trinity has high initial production (IP) rate potential, mentioning that infill drilling on five wells through 2014 on the Trintes field (where in the fourth quarter of 2013 averaged 1,428 barrels per day) will be completed using a “J” profile type well. This will help deliver higher IP rates, bay around 500 barrels per day (bbl/d) compared to 265 bbl/d from latest infill well. RBC also said Trinity has another well to come that could open up follow-on potential. On Trinity’s other assets, RBC said that on the West Coast, at the MP-8 platform, Trinity concluded the planned seven recompletions. Onshore Trinity temporarily suspended drilling to ensure the approvals secured and associated operating synergies and cost savings can be realised before recommencing. In line with RBC forecasts, net production averaged 4,210 barrels of oil equivalent per day (boepd) in the fourth quarter of 2013 (Q4/13), and Trinity ended the year with net cash of US$9 million and undrawn debt facilities of US$25 million from Citibank.
Trinity expects to produce 3,800-4,500boe/d in 2014, RBC said. The high end is subject to successful infill drilling at the Trintes field. Trinity’s capital expenditure (capex) budget for 2014 is around US$21 million, of which US$6 million is related to infrastructure, and US$7 million for exploration, and the remainder for production drilling. Giving its valuation, RBC said: “On a sum-of-the-parts basis, discounting at ten per cent from January 2013, our risked NAV for Trinity Exploration & Production is 237 pence per share (p/share). Our valuation comprises 147 p/share for the company’s core asset base (fields onstream or under development). Pre-development and appraisal with exploration portfolio is valued at 90 p/share on a risked basis. Net financials including debt, cash in hand, and exploration expenditure total 24 p/share. “Our price target of 200 p/share reflects 1.0x our tangible NAV of 207 p/share; it assumes production growth is achieved and the current discount to producing assets unwinds through 2014.”