Trinity renews onshore lease agreements for 10 years

Trinidad and Tobago-focussed exploration and production company Trinity said on Wednesday that its onshore lease operatorship agreements (LOA) have been renewed for a 10-year period, effective from 1 January 2021.

The AIM-traded firm said it had renewed the LOAs for its WD-2, WD-5/6, WD-13 and WD-14 blocks, which were originally set to expire on 31 December 2020 and had previously been extended to 31 May, while terms were finalised with Heritage Petroleum Company.

It said the 10-year licence period, versus five years previously, would provide a longer investment horizon, and thus a greater ability to maximise returns.

Trinity said “appropriate” work programmes had been set for each of the LOAs, with a minimum of 15 new infill wells and 30 heavy workovers inclusive of recompletions to be completed over the licence period, which the company was “highly confident” of exceeding.

It said there was a new focus on enhanced oil recovery projects and feasibility assessments, which the board said married well with the firm’s 3D data-driven approach enabling it to identify applicable areas of interest and reduce geological risk.

The overriding royalty rates had been favourably adjusted on a block-by-block basis to incentivise higher activity levels and maximise economic recoveries, with Trinity reporting that at the current oil price band of $50.01 to $70.00 per barrel, the base overriding royalty rate was reduced by 15%.

It said the enhanced rates had been reduced by between 40% and 63% dependent on the oil price band, with new “super-enhanced” overriding royalty rates 50% lower than the enhanced rates applying across all oil price bands once the production thresholds were exceeded.

The thresholds up to which the base and enhanced rates apply would decline at about 2% each year across the licence term, further incentivising the licence operators to optimise the productivity of the fields for the long term.

Trinity said the improved royalty structure would reward production increases from all activity types, and not just drilling new infill wells as was previously the case.

The aggregate increase in the net asset value across the onshore portfolio was estimated at between 4% and 14%, depending on where realised prices were between $30 and $65 per barrel.

At the current oil price, the accretion to the onshore portfolio net asset value was estimated to be about 7%.

Looking ahead, Trinity said finalising the 10-year LOA licence renewals, integrating the recently-acquired 3D seismic data across its now-larger contiguous acreage following the recent acquisition of the PS-4 block, the improved oil price outlook and the recently-implemented SPT reform provided a “much improved outlook” for the company’s onshore business.

The board said the introduction of the super-enhanced overriding royalty rate and simultaneous removal of the new well drilling incentive would encourage lease operators to look to sustain and grow base production by a variety of means, to the benefit of all stakeholders.

That improved technical and commercial backdrop gave the directors confidence that the firm would be able to plan for the long term, generate greater prospectivity and deliver higher cash flows.

In addition, they said it would allow Trinity to progress plans to restart drilling during the second half, with a view to further drive value and build on production forecasts over the short- and medium- term.

“We are delighted to have renewed these licences for double the previous tenure, and on improved terms, which will work for the benefit of all stakeholders,” said executive chairman Bruce Dingwall.

“We continue to have a strong relationship with Heritage and the terms of the extension provide us with the ability to focus on driving value as we increase production from existing and new wells, especially on the back of now having the 3D seismic data.”

Dingwall said that, when combined with the government's recent moves to reform the SPT regime, the commercial and fiscal backdrop was moving in “the right direction” for existing operators to invest further and to attract new entrants into the region.

“Trinity has long-championed its portfolio approach and we have a broad range of near-term and longer-term opportunities all geared towards increased production, returns and scalability.”

At 1018 BST, shares in Trinity Exploration & Production were up 7.57% at 18.56p.