WTI (June) $81.93 -70c, Brent (July)* $86.39 +17c, Diff -$4.40
USNG (June) $1.99 -4c, UKNG (June) 72.19p +3.39p, TTF (June) €28.725 +€0.63
*Denotes Brent June contract expiry

Oil price

Fed day today but no news can be expected and the dollar remains strong. With cease fire talks still going on and the API stats showing a crude build the oil price is down again. 

Touchstone Exploration/Trinity Exploration & Production

The board of directors of each of Touchstone and Trinity are pleased to announce that they have reached agreement on the terms of a recommended all share offer pursuant to which Touchstone will acquire the entire issued and to be issued ordinary share capital of Trinity. The Acquisition is to be effected by means of a scheme of arrangement under Part 26 of the Companies Act.

• Under the terms of the Acquisition, Trinity Shareholders shall be entitled to receive: for each Trinity Share 1.5 New Touchstone Shares
• Under the terms of the Acquisition, Trinity Shareholders will, in aggregate, receive approximately 58,341,102 New Touchstone Shares. Immediately following completion of the Acquisition, Trinity Shareholders will own approximately 19.9 per cent. of the share capital of the Combined Group (based on the existing issued common share capital of Touchstone and the fully diluted ordinary share capital of Trinity as at 30 April 2024 (being the latest practicable date prior to the date of this announcement).
• Based upon Touchstone’s closing share price of 41.25 pence as of 30 April 2024 (being the last practicable date prior to this announcement) the Acquisition represents an implied value of 61.9 pence per Trinity Share (approximately US$0.77 per Trinity Share), valuing the entire issued share capital of Trinity at approximately £24.1 million (approximately US$30.1 million).
• The terms of the Acquisition represent a premium of approximately 71.9 per cent. to the Closing Price per Trinity Share of 36 pence on 30 April 2024 (being the latest practicable date prior to the date of this announcement), 55.4 per cent. to the 3-month volume weighted average price per Trinity Share of 39.8 pence as at close of 30 April 2024 (being the latest practicable date prior to the date of this announcement) and 13.6 per cent. to the 9-month volume weighted average price per Trinity Share of 54.5 pence as at close of 30 April 2024 (being the latest practicable date prior to the date of this announcement).
• The board of directors of each of Touchstone and Trinity are also pleased to note that, in total, Trinity Shareholders (including those Trinity Directors who hold Trinity Shares) representing 38.9 per cent. of Trinity’s issued ordinary share capital (excluding Trinity Shares held in treasury) as at 30 April 2024 (being the latest practicable date prior to the date of this announcement) are supportive of the Acquisition and have each entered into irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting.

Strategic rationale for the Acquisition

Touchstone is currently the largest independent onshore oil and natural gas producer in Trinidad, with assets in several reservoirs that have an extensive internally estimated inventory of petroleum and natural gas development and exploration opportunities.

Having brought its Coho-1 well online in Q4 2022 and its first two wells at its Cascadura field, Cascadura-1ST1 and Cascadura Deep-1, in late Q3 2023, Touchstone’s production and funds flow from operations has increased markedly. Touchstone’s 2024 guidance published on 19 December 2023 anticipates funds flow from operations of US$32m, which will give it the financial resources to continue to invest in its development and exploration activity to increase Touchstone’s future reserves base and production volumes. Touchstone believes that from this position, the Acquisition will provide an opportunity to create a business of significant scale in Trinidad with an enhanced ability to deliver growth in reserves, production and cash flow for the benefit of both sets of shareholders and local stakeholders.

Touchstone believes that the Acquisition presents a compelling strategic opportunity for both companies and their shareholders for the following reasons:

• Creating a leading Trinidadian operator of scale – The addition of Trinity’s existing production portfolio, along with its exploration and development assets, will position the Combined Group as one of the leading independent operating companies dedicated to investing in both onshore and offshore activity to grow Trinidadian oil and gas production. On a pro-forma basis, the combination of the two businesses would create a producing portfolio of between approximately 11,700 and 12,400 boe/d (based upon 2024 average daily production guidance) with combined proved plus probable reserves of approximately 80.3 MMboe as at 31 December 2023.
• Combined funds flow from operations to invest in a larger portfolio of development opportunities – Touchstone believes that the Combined Group will have strong operational cash flow generation from a production base with critical mass in both oil and natural gas producing assets. Touchstone notes that Trinity has previously disclosed unaudited EBITDA pre-hedging of US$18.5 million cumulatively for 2023, and that it expects to report operating cash flow of between US$10 million to US$12 million for the 12-month period ending 31 December 2023. Trinity’s closing unaudited net cash for the year ended 31 December 2023 was US$5.8 million. When combined with Touchstone’s funds flow from operations (which is expected to be US$32 million for 2024), the Combined Group will have the resources, capacity and flexibility to invest in multiple development programmes concurrently to accelerate the potential of the combined asset base. Touchstone also believes that the enhanced cash flow potential will also allow greater optionality over capital allocation decisions and provide for a sustainable approach to future shareholder distributions.
• Enhanced development and exploration portfolio – Trinity’s assets will provide additional development inventory for funds generated from the Combined Group’s operations to be invested to generate the most impact and highest returns on capital. The Combined Group will also benefit from an attractive portfolio of exploration and development prospects across Trinity’s onshore Hummingbird portfolio and Buenos Ayres Block, as well as its TGAL discovery at the offshore Galeota block, and at Touchstone’s Ortoire licence area and Cipero, Charuma, and Rio Claro blocks (subject to licence agreement finalisation). Together, the portfolio provides a diversified opportunity with the potential to materially enhance the long-term value of the Combined Group.
• Potential for efficiencies and significant synergies – Touchstone believes that the Acquisition will allow the Combined Group to benefit from greater economies of scale and recurring annual cost synergies, which Touchstone expects to be significant and which would reduce the combined overhead base, providing higher corporate netbacks and generating greater cash flows for shareholders. Touchstone believes that having two separate quoted Trinidadian producers currently results in duplication of overheads and fixed costs which could result in efficiencies in future. Touchstone believes it will be able to integrate and operate the enlarged portfolio of assets with limited additional overhead to Touchstone’s current cost base, representing a significant reduction in corporate overheads on a pro forma combined basis.
• Complementary technical and operational experience – Touchstone believes that the knowledge and experience of Trinity’s staff is highly complementary to Touchstone’s own and will allow the Combined Group to benefit from the best mix of skills and experience to create an efficient business for shareholders which is best able to exploit the opportunities from the Combined Group’s asset base.
• Cash flow accretive – The addition of Trinity’s producing and adjusted EBITDA-generative assets into the enlarged group is expected to be accretive on a funds flow from operations basis in the first full year after the completion of the Acquisition before taking account of expected recurring annual cost synergies realised.
• Increased shareholder liquidity – With a broader shareholder base and more shares in issue, Touchstone believes that shareholders will benefit from the larger size and increased liquidity of the Combined Group and will be able to trade their Touchstone Shares on both AIM and TSX.

Recommendation

• The Trinity Directors, who have been so advised by Houlihan Lokey as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to Trinity Directors, Houlihan Lokey has taken into account the commercial assessments of the Trinity Directors. In addition, the Trinity Directors consider the terms of the Acquisition to be in the best interests of Trinity Shareholders as a whole. Houlihan Lokey is providing independent financial advice to the Trinity Directors for the purposes of Rule 3 of the Code.
• Accordingly, the Trinity Directors intend to recommend unanimously that Trinity Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting as those Trinity Directors who hold Trinity Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 464,463 Trinity Shares representing, in aggregate, approximately 1.2 per cent. of the ordinary share capital of Trinity in issue on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to this announcement.

Irrevocable undertakings

• As noted above, Touchstone has received irrevocable undertakings from each of the Trinity Directors who hold Trinity Shares to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting, in respect of a total of 464,463 Trinity Shares, representing approximately 1.2 per cent. of the existing issued ordinary share capital of Trinity on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to the date of this announcement.
• Touchstone has also received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting from Trinity Shareholders in respect of a total of 14,618,881 Trinity Shares representing, in aggregate, approximately 37.7 per cent. of Trinity’s existing issued ordinary share capital on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to this announcement.
• Touchstone has therefore received irrevocable undertakings in respect of a total of 15,083,344 Trinity Shares representing, in aggregate, approximately 38.9 per cent. of Trinity’s ordinary share capital in issue on 30 April 2024 (excluding any Trinity Shares held in treasury) being the latest practicable date prior to this announcement.

Commenting on the Acquisition, Jeremy Bridglalsingh, the Chief Executive Officer of Trinity, said:
“I am pleased to be recommending Touchstone’s offer to our shareholders. Our two companies have operated in close proximity over many years. The premium offered demonstrates the value Touchstone sees in Trinity’s team and operations and its confidence in the future potential of the enlarged business.”

Commenting on the Acquisition, Paul Baay, the President and Chief Executive Officer of Touchstone, said:
“We believe this acquisition represents a compelling strategic opportunity which will deliver enhanced scale, balance sheet strength, and growth opportunities. The business combination will create an upstream oil and gas company of increased scale in Trinidad, enhancing our ability to deliver growth in reserves, production and cash flows for the benefit of our combined shareholders and local stakeholders. The combined group will be able to invest in multiple development programmes and accelerate the growth potential of the enlarged asset base, thereby giving us the potential to materially enhance long-term value”.

I am going to make minimal comments right now, I shall wait until the webcast/analysts meeting or a conversation with Paul Baay later. However readers of the blog will know my recent thoughts about Trinity, I have made it clear that they were in a position since Jacobin that meant that their options were extremely limited and so getting the price they have done in this deal is to be commended. 

So with them unable to dictate terms in what was going to be open season in Trinidad M&A activity all that was left was to try and get a half decent price for the business which is currently ex-growth. With Touchstone having decided to stay in Trinidad the best thing for them  was to start acquiring other companies and creating scale on the island. A good starting place with Trinidad and the combined company will have scale and a better ability to work on the island, maybe a slightly higher premium has secured certainty of the deal and gives Touchstone control over onshore Trinidad. 

This deal fires the starting gun for an M&A programme on the island, there may be more and I would expect that, in the meantime Touchstone has struck out first and as the strongest of all the participants will look forward to the dominant position it has secured.

Longboat Energy

Longboat has announced the following change to the board of directors.

In May 2023, Longboat announced that it had reached agreement with Japan Petroleum Exploration Co. to make a significant investment into its Norwegian subsidiary to form a joint venture, Longboat JAPEX Norge AS. In order to maximise the value of Longboat Japex and pursue its growth strategy, Helge Hammer has elected to focus his time exclusively on his role as Chairman of Longboat JAPEX. Accordingly, Mr Hammer will step down from his role as Chief Executive Officer of Longboat Energy and from the board of the Company, with immediate effect.

In recognition of the growing importance of Southeast Asia in the Company’s portfolio and opportunities to capitalise on the advantages Longboat has created in the region, Nick Ingrassia, currently the Corporate Development Director, will assume the role of Chief Executive Officer.

Graham Stewart, Chairman of Longboat commented:
“On behalf of the Board of Longboat, I would like to thank Helge for his years of dedication and service as Chief Executive Officer. Delivering on Longboat JAPEX’s acquisition pipeline is critical for the Company and this step will allow Helge to focus on delivering shareholder value from Longboat’s Norwegian joint venture.

The Board sees considerable opportunity in Southeast Asia and Nick’s appointment as CEO will allow Longboat to focus on taking full advantage of the exciting opportunity set in front of us.”

Helge Hammer, outgoing CEO of Longboat commented:
“Following the successful sale of Faroe Petroleum in 2019, we established Longboat Energy with focus on Norway, where we have built a full cycle portfolio and have a fantastic team of E&P professionals. I’m confident that Nick Ingrassia, a highly respected leader at Longboat Energy, with a deep understanding of our business and a proven track record of success, will lead the company forward seamlessly. I would like to thank my colleagues in Longboat Energy plc for the many years of hard work and I look forward to continuing to work and grow a material production portfolio in Norway together with Longboat JAPEX team.”  

As I write I am waiting to talk to Longboat management about a series of management changes which leave me somewhat unconvinced. The company has a large number of excellent directors but are they all in the right place? As a former Faroe fan I cannot understand why Helge has left the management team, I am known to be a huge fan of James Menzies so that area is in excellent hands but I guess better folk than me will tell me one day…

I must be missing something, it wouldn’t be the first time.

Predator Oil & Gas

Predator has announced that further to the Company’s announcement on 20 February 2024, PRD is pleased to confirm that Petroleum Agreement Amendment #4 has been ratified and that preparations for the Sandjet rigless testing programme can now be progressed as planned.

Let action commence…

KeyFacts Energy Industry Directory: Malcy's Blog