AIM-listed Trinity Exploration & Production, the independent E&P company focused on Trinidad and Tobago, has executed a Sale and Purchase Agreement ('SPA') with Moonsie Oil Company, a private Trinidad based operator, to acquire an operated 100% interest in the PS-4 Block Lease Operatorship Sub-Licence, onshore Trinidad for a total headline cash consideration of US$3.5 million (subject to potential closing adjustments as described below), to be funded from the Company's existing cash resources.
- Offers significant opportunities to add reserves and production on a meaningful scale
- Contiguous to Trinity's largest and most prolific onshore Block, WD-5/6
- Enables Trinity to expand its new 3D seismic sequence stratigraphic interpretation approach
- 80% of the PS-4 block covered by Trinity's 3D seismic cube
- Provides substantial synergies from a financial, operational and technical perspective
- Funded from existing cash resources and immediately accretive to operating and free cash flow
Overview of the PS-4 Block
The PS-4 Block covers c.4 km2 located onshore in the Southern Basin of Trinidad in the prolific producing Grande Ravine area within the Super-Giant Forest Reserve Field (produced >1 billion barrels to date). Significantly, the PS-4 Block is contiguous to Trinity's largest and most prolific onshore Block, the WD-5/6 Block, and to Trinity's WD-2 Block. Current production from the PS-4 Block is from multiple stacked sands in the Morne L'Enfer, Forest, and Cruse Formations. It is located geologically up-dip and due east of the Company's WD-5/6 Block and due northeast of the WD-2 Block. The PS-4 Block is therefore strategically located from both an operating and geological standpoint, and enables Trinity to expand its new 3D seismic sequence stratigraphic interpretation approach across not only a larger contiguous area but also to a less well-developed area of the Southern Basin.
Production in the PS-4 Block started in early 1930's and has produced over 9 mmbbls of oil to date with a recovery factor of between 12.5%-17%. Global averages for conventional recovery factors in similar clastic reservoirs average between 25-30% and, as such, there is the potential for a significant uplift in production and reserves.
In comparison to the WD-5/6 Block, the PS-4 Block has seen relatively little new investment over the last 30-40 years, from both a technical and drilling perspective, and therefore offers significant opportunities to add reserves and production on a meaningful scale. The PS-4 Block has had only six wells drilled on it over the last 30 years. In contrast, Trinity's neighbouring WD-5/6 Block has had over 50 wells drilled on it during the same period and currently produces over 1,000 bopd. Given the geographic proximity, Trinity believe there are substantial synergies from a financial, operational and technical perspective. Building on Trinity's automation and data driven operating approach, the Company expects to compound the enhanced economic returns expected from the resultant larger, contiguous acreage position over this prolific basin.
The acquired licence is pending the administrative process for renewal from Heritage Petroleum Company Limited ("HPCL") (which like Trinity's existing Lease Operatorship Agreements ("LOAs") are currently extended until 31 May), alongside all LOAs onshore Trinidad. Once renewed, the licence will be a 10 year Sub-Licence effective 1 January 2021 after which time it is expected that there will be further renewals.
Following the recent acquisition of a 2D & 3D seismic package from HPCL, the 3D data (covering c.37km2) integration has commenced, and Trinity's subsurface team has been strengthened to accelerate the data integration and mapping process. With 80% of the PS-4 block covered by Trinity's 3D seismic cube the Company will immediately be able to integrate the PS-4 area into the wider subsurface evaluation process. This offers the potential to high grade existing and identify new drilling candidates across the larger contiguous area, assist in identifying the best high angle and horizontal well opportunities and explore the possibilities for enhanced oil recovery over meaningful areas. With more investment into better understanding of facies and distribution of the reservoir zones across the PS-4 Block, a much more accurate and focused effort on enhanced oil recovery ("EOR") techniques will also be possible, reducing reservoir risk and potentially resulting in a meaningful impact on production and reserves.
Furthermore, the re-definition of basin fill and deformation (stratigraphy and structure) will enable the development of new plays and redefinition of old plays on both a local and regional level providing the potential to build an onshore appraisal and exploration prospect inventory of real scale in the near term.
Following a full 3D seismic interpretation and the re-mapping and integration of all historical wells and production data, the Company will update the market on reserves and forward plans for the Block and the greater Erin Basin area. This is expected to be largely completed during 2021. On the ground, the Company will, on further review of well data, promptly initiate a comprehensive workover plan to reinstate and build production. In addition the Company will examine and tier all the wells on the Block to seek automaton well candidates. Further updates will be made in due course.
Overview of the Acquisition
The Acquisition has a total headline cash consideration of US$3.5 million based on an effective licence date of 1 January, 2021, and is structured as a purchase of a Sub-Licence interest. Upon completion, the purchase price will be adjusted to reflect any relevant revised licence terms from the effective licence date, and other customary adjustments (which are not expected to exceed US$0.1 million).
An additional contingent consideration of up to US$0.5 million may be payable to HPCL in the event that HPCL require the seller to pay a transaction fee applicable if ownership is transferred within two years of a licence term.
The Company believes this transaction offers considerable potential to increase shareholder value with the sale of individual Lease Operatorship licences being relatively rare. Highlights of the transaction include:
- Geologically contiguous with WD-5/6 & WD-2. An increase in the Company's contiguous acreage position in the prolific Erin syncline sub basin by approximately 28%
- Excellent operational synergies with WD-5/6 & WD-2 licences
- Production of c.83 bopd (2020 average), with immediate workover opportunities to raise current production levels significantly
- Immediately accretive on an operating cash flow and free cash flow basis
The purchase consideration will be funded from the Company's existing cash balances (31 March 2021: US$20.0 million, unaudited). The rest of Trinity's producing portfolio remains self-funding, with 2021 investment activities to be funded from existing cash resources.
Completion of the Acquisition will occur upon satisfaction of conditions, including acceptance of Trinity as operator by HPCL, Government approvals relating to title transfer and change of operatorship and other customary conditions on or before 29 October 2021. The Company anticipates completing the transaction towards the end of Q2 2021, and until then Moonsie Oil will continue as operator of the assets.
Bruce Dingwall, CBE, Executive Chairman of Trinity, commented:
'Adding the PS-4 Block to our existing high return onshore portfolio demonstrates our ability to bolt on assets that increase our acreage position in the Erin syncline, and provides significant technical, operational and financial synergies. Crucially, the Block extends our contiguous acreage position around our most prolific existing acreage and where we expect to yield the most upside from the 3D seismic interpretation. The PS-4 Block adds both significant additional opportunity as well as further runway to our onshore operations. Putting additional barrels across Trinity's highly efficient operating base provides attractive leverage, especially as we are applying modern 3D data and accelerating our moves to automate our operations.
'We are excited by the opportunity to deploy our expertise to optimise recoveries from this under-invested producing asset, particularly as we see significant reserves, production and prospectivity upside. The PS-4 Block has achieved very modest recovery factors to date, relative to the substantial estimated original oil in place and the surrounding analogies of the WD5/6 and WD2 blocks, thereby extending our platform to showcase our differentiated technical capabilities. With ongoing reinvestment into the fields, we foresee many opportunities to increase production alongside further exploration and appraisal targets that may be generated.
'The Acquisition is immediately accretive to shareholder value and will be funded entirely with cash on hand.
'Looking at the growth initiatives in front of us, we see opportunity in two areas. Firstly, in advancing current developments both onshore and offshore, and secondly, via the strategic partnerships we have recently entered into. This strategy is aimed at pursuing further low-cost appraisal and exploration targets along-side the development of transitional energy projects such as micro LNG, wind and solar power.
'We proved the strength of our model during the most difficult of circumstances in 2020 and have ambitious plans to build on this during the current year and beyond.'
Source: Trinity Exploration & Production