Trinity Exploration trashes Touchstone deal despite mounting debt pressure

Shares in Trinity Exploration crashed to an all-time low intially on Monday as the oil tiddler revealed a battered balance sheet and the collapse of a $21m asset sale.

The AIM-listed producer and explorer, which produced an average net production volumes of 2,896 barrels of oil equivalent per day last year, has outstanding debts of $13.0m, for which creditors have granted a moratorium on principal repayments until 25 March.

Trinidad-focused Trinity had agreed to sell interests in five low-cost prospecting blocks for $20.8m cash back to owner Touchstone Exploration but as all the conditions of the sale were not in place by Sunday's deadline, Trinity decided to pull the plug.

As a result, Trinity will lose the $2.08m desposit that had been held in escrow.

The company argued that as the Touchstone assets are lowest-cost assets in its portfolio, holding on them "enhances Trinity's portfolio for attracting the funding required to implement the forward strategy of the group".

Trinity's directors, led by executive chairman Bruce Dingwall, believe clearing the debts will make the company an attractive investment and so have appointed refinancing advisers at Imperial Capital in New York and Cantor Fitzgerald in London, adding that they are encouraged by the early levels of interest "from several institutions".

A $2.8m cash sale of another block offhsore Trinidad is nearing completion but the balance sheet remains in a parlous state.

As of the end of December, there was $8.3m cash, trade and other receivables of US$10.6m, inventories of $4.0m, debt of $13.0m, trade and other payables of $27.8m and taxation payable of $23.5m.

Directors said they had cut operating expenditure by 30% and back office costs by 30%, with the target in 2016 of cutting annual run-rate to US$3.7m being targeted by the year end 2016, which would be equivalent to US$3.6/bbl at current production levels.

They expect 2016 net average production to range from 2,500-2,800 boepd, pledging to priorotise capital expenditure to maintain and grow production through recompletions and workovers before any new drilling takes place.

"Across Trinity's ongoing asset base there are identified pathways for value and production growth. Until such time as these can be funded the Company aims to continue to reduce operating breakeven levels whilst warehousing and retaining the integrity of a significant volume of reserves and resources," the company said.

"While the company is progressing a funding solution and is encouraged by interest levels there is no certainty that any such transaction or refinancing will be concluded on acceptable terms."