Trillion Energy International Inc. (CSE:TCF) is set to steeply ramp production and cash flow in the coming months
Keith Schaefer, Investing Whisperer | March 2, 2022 | SmallCapPower: Trillion Energy International Inc. (CSE:TCF) is the junior European natural gas stock that is set to drill 17 wells—with the first 7 already having discoveries—and steeply ramp production and cash flow in the coming months.
At current natgas prices—just over US$11/mcf—the independent reservoir engineering firm GLJ is projecting that Trillion would generate cash flows by the end of this year that are bigger than the company’s enterprise value today.
In yesterday’s set up story, I explained the recent past of natgas in Europe—that a new bid is under this market for years, due to
- energy transition to higher cost and less reliable renewables
- politics surrounding Russia
- Gas hungry Asia buying all the LNG cargoes
Now, here is what is happening in the near future—Trillion Energy will start a 17 well drill program, and soon: they announced the MOU for their drilling rig TODAY.
These aren’t exploration wells. The first 7 wells are already discoveries. This is simple stuff. The engineers know what to expect from the wells and the costs involved. Management says that operating costs will be less than 50 cents per mcf–and prices are over $11!!
Those wells will be brought on production one at a time, each one being a HUGE boost to cash flow and a material news item for the stock.
Cash flow bump after cash flow bump. Catalyst after catalyst.
After just the first seven wells, Trillion projects cash flow of $3.7 million per month……which my calculator tells me is $44.4 million annually (and that’s at US$9/mcf—not the current $11+). These numbers are based on previous wells in the same producing gas pools these new wells are drilling into.
Trillion Energy’s enterprise value is CAD$55 million–(it was only $44 million yesterday!)–so on a net-present-value basis Trillion’s $44 million market valuation starts looking a little crazy.
Third party engineering puts the value of discovered non-producing and development wells at $169 million for 2P reserves. So I get to buy this stock at 0.3x NPV10.
And that isn’t using current European natural gas prices I can assure you!
HOW DID TRILLION GET HERE?
I have spent a few hours talking to CEO Arthur Halleran on this opportunity. Here is a very seasoned international oil and gas operator—he co-founded Canacol, a Colombian natgas producer, and was first ex-pat to go in-country on three other ventures.
He took the company over in 2017 when nobody cared about international junior energy producers. He was such a believer in this play—and the in-country team that Trillion had (their country manager has been there for 15 years!!)—that he worked for stock instead of salary at different times. He now owns 12 million shares.
Arthur is a roll-up-your-sleeves CEO. He is not a finance guy living in New York City. He’s an “ops” man, with years of on-the-ground experience doing international deals. Management is key—and Trillion has it.
Investors haven’t heard this story before because it just re-domiciled to Canada from the USA a month ago.
This is a brand-new, ground-floor story for millions of investors now.
And the story of how this play came to be where it is now—is remarkable.
A Forgotten Asset Bought For Pennies Out Of A Large Bankruptcy Process
Trillion’s company making asset is the SASB natural gas field located in the Black Sea——one of the Black Sea’s first and largest natural gas development projects.
Trillion has 49% of the asset. The Turkish national oil company is the partner…..but Trillion’s team which specializes in shallow water development are calling the shots.
The economics that Trillion is looking at here are very, very good.
Trillion picked up this asset in a much larger bankruptcy process. It was a STEAL of a deal. Here’s the quick story:
A group of hedge funds held the debt of a large Norwegian oil and gas company—and forced it into bankruptcy. This is standard hedge fund tactics. Buy debt cheap, force a bankruptcy and get your bonds paid back in full while destroying the common shareholder.
To satisfy the hedge funds, the receiver in the bankruptcy process shoveled the Norwegian company’s assets out the door for pennies on the dollar.
One of those assets was the SASB natural gas field—which the receiver sold sight unseen. The buyers of assets in the bankruptcy process had no data on the field. That’s like buying a car and you don’t even know if it’s got an engine in it.
Trillion’s network alerted them and—long story short—they got it–an incredible asset for the princely sum of $2.5 million.
This is a shallow offshore project. It comes with four different platforms that are in great shape AND subsea pipelines AND the existing processing facility onshore it all connects to. CEO Art Halleran says it would cost US$370 million to replace that today (it cost over $270 million back then!).
In this business it’s easy to make money drilling wells when your infrastructure is already paid for. It is kind of like someone giving you an apartment building for free and all you have to do is rent it and then pay for the property taxes and operating costs.
TECHNOLOGY REDUCES COSTS DRAMATICALLY!!
Directional drilling really helps make this play work. Only a few short years ago, you had to park a big drill rig over every well, and each one got a production platform. Expensive!
But now, directional drilling allows you to drill and produce from a more centralized platform.
Trillion says this could cut costs by over half—and hey, remember, the infrastructure is already paid for!
With this recent new tech, the economics on these wells goes up HUGE!!—because this allows them to can connect each well directly to the platform without having to spend anything at the ocean floor at the drill site.
CONCLUSION—TRILLION HAS A CHANCE TO BE A VERY SPECIAL INVESTMENT
This is the PERFECT stock for this time in the Market. Energy is hot again. This forgotten asset has a rock-bottom valuation (CAD$55 million market cap) yet is about to re-drill and tie-in SEVEN wells that already have discoveries, in one of, if not THE, most lucrative energy markets on earth right now—European natural gas.
Domestic energy stocks have run BIG. International plays are now getting rewarded—but it’s much earlier in their cycle.
This is one of the lowest-risk, highest-reward plays I have ever seen in my 13 years writing about energy. The physical natgas market in Europe NEEDS more molecules outside of Russia. The investing Market WANTS to buy these plays now.
I have experienced management and a big play in a lucrative gas market. I’m excited, and I’m long. This is my largest energy position BY FAR.
Because it is cash flow that drives real shareholder value. And I think a stunning ramp in cash flow is about to happen.
Trillion Energy management has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.
Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.
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