Written by: Kerry Lutz
Tightening energy supplies and geopolitical tensions have led to greatly increased worldwide natural gas and oil prices, making investors the only winners.
Soaring European energy prices are hitting households and energy providers. Since the fall of 2021, energy prices have been increasing steadily and have been pushed even higher by the Russian – Ukraine War. The cost-of-living crisis is not going away anytime soon and promises to get even worse next winter. Paying the energy bill has become a challenge to millions of Europeans, all while energy companies are making billions.
According to Keith Anderson, chief executive at one of the UK’s largest providers, this fall the crisis “is going to get truly horrific”. Demand will spike during heating season in what could be a colder than average winter. The European Union is close to embargoing Russian oil as part of its sixth sanctions package. Hold-outs Hungary and Slovakia have until 2024 to replace their oil suppliers. Bulgaria has threatened to veto the embargo unless it also receives an exemption. Whatever the EU may decide, Germany intends to stop importing Russian oil, and to significantly curtail gas imports. Ukraine recently cut off Russian gas flows to Europe, citing a force majeure provision in its pipeline contract, thus driving May 2022 prices higher.
It is no wonder that Rystad Energy, a respected energy consulting group, predicted European gas prices could TRIPLE again — citing a PERFECT STORM of events.
Thanks to the geo-politically induced rally, Big Oil is raking in huge profits. BP booked a profit of $6.2 billion for the first quarter of 2022, Exxon booked a profit of $5.5 billion for Q1 2022. Conoco reported profits of $5.76 billion and Shell booked $9.13 billion in profits for the same period. The major energy companies are using these profits to buy back their shares, a trend which began during the COVID pandemic.
With a few small exceptions, European natural gas producers are woefully ill-equipped the meet the demand. One exception is Trillion Energy International (CSE: TCF, OTCQB: TRLEF, Frankfurt, Z62, Forum), which presents a unique opportunity to investors as it is perfectly positioned to capitalize on the on-going energy crisis. Trillion produces gas and oil in Turkey, where natural gas prices have rocketed from $6 to $18 per mcf, in less than a year and up 40% in 2022 alone. It is about to put a major gas field back online.
Trillion has a ready-built large natural gas facility and pipeline infrastructure in place, which according to CEO Arthur Halleran has a replacement value that could exceed $500 million. Trillion’s SASB Black Sea shallow water natural gas field holds large quantities of urgently needed natural gas that will help supply a region experiencing acute shortages and high prices.
Production costs for the SASB field are expected to be sub-US$1 per mcf + 12.5% royalty over a planned 17 well development, giving Trillion massive margins at the current $18/MCF gas price. Netbacks like these are rarely seen and soon Trillion could be raking in cash just like the majors.
In a recent oversubscribed financing, Trillion raised much of the cash needed to kick-start the project. Investors participated enthusiastically; no doubt driven by the company’s unique position in the resurgent energy sector.
Trillion’s aggressive multi-well gas drill program starts in Q3, with production revenues expected to follow shortly thereafter. CEO Art Halleran recently visited the regional project office to propel the project forward, targeting July 2022 to have the contracted rig onsite. All supplies required to spud the first wells are on order. A well-known world class oilfield services giant has been retained to oversee engineering of its drilling program.
Thus, the Company is at the forefront in the race to replace Russian energy supplies in Europe and Eurasia, where a once in a lifetime fundamental paradigm shift in the region’s energy supply chain is taking place.
Trillion aims to drill over 17 wells over the next two years, bringing one new well into production after another. It’s a bold plan that will escalate cashflow as each well comes online. According to CEO Halleran, “We are using best in class engineering and drilling support services at SASB. Using long reach drilling technology, directional drilling tools, and state of the art engineering, we will lower our capital costs for bringing the new wells into production and increases the anticipated returns.”
When the SASB gas field is fully developed, at peak, Trillion’s estimated cash flow could reach $180 million per year; many multiples of the Company’s current share price.
The Company received third-party engineering reports for its reserves and resources prepared by GLJ Inc and when combined, estimated the following:
|Item||Class||BCF||NPV10% $US Million(2)||Class||Bcf||NPV10% $US Million|
|Discovered non-producing||2P||20.2||$75.7 m||3P||31.4||$129.2 m|
|Development prospects, risked||Medium estimate||23||$93.6 m||High Estimate||36.4||$156.0 m|
|TOTAL||40.3||US $169.m||62.4||US $285m|
|C $216m||C $367 m|
From the above chart, representing the current work program, the combined net present value discounted at 10% (“NPV10%”) for the current 17 well work program (2P gas reserves plus risked medium case estimate of gas prospects is USD $169.3 Million (CND$216m) up from US $138.64). The combined net present value discounted at 10% (“NPV10%”) for the 3P Reserves plus high estimates for prospects, the NPV10% USD is USD $288m (CND$367m) up from USD $243.3m.
Actual cash flows could be much higher than the assessment shows, if current gas prices hold up. In April 2022 natural gas hit $18 /MCF, far exceeding the modest $8-9/MCF sales prices used in the reports.
Trillion has more than one European natural gas project on the burner. Russia’s late April arbitrary cut-off of Bulgaria’s natural gas supplies caused an economic crisis. The company then announced plans to accelerate its Bulgarian project’s development. Sky-high natural gas prices have improved the Bulgarian project economics too much to be ignored. Bulgaria’s current natural gas price is US$22/mcf, indicating that this project could have enormous upside potential. Trillion is currently in discussions to prepare the necessary environmental reports to commence drilling work on the field; it intends to drill five new wells.
On the Bulgarian gas property, a 2014 preliminary survey by engineering firm Netherland Sewell & Associates estimated that undiscovered gas resources amounted to some 1.15 billion cubic feet (32.6 million cu m), according to best estimates.
Undiscovered Original Gas in Place -Billion Cubic feet (Bcf)
|Prospective Formations||Low Estimate||Best Estimate||High Estimate|
Unrisked Gross (100%) Prospective Gas Resources (Bcf)
|Prospective Formations||Low Estimate||Best Estimate||High Estimate|
Trillion is pursuing its Black Sea and Bulgarian projects with renewed vigor to capitalize on the current favorable environment for oil and gas producers. Fresh from its recent financing, it now has the cash and resources to commence drilling on these projects, along with the infrastructure needed for distribution in Turkey. Once production starts, Trillion expects to generate substantial cash flows which could likely result in large shareholder returns, all while providing much needed scarce energy to its partners and customers.
Recent Trillion Energy International (TCF: CSE; TRLEF: OTCQB) News and Interviews:
May 18, 2022 – Trillion Energy International Signs Drilling Rig Services Contract
May 11, 2022 – Trillion Energy International SASB Drilling Program Update
April 29, 2022 – Trillion Energy to Begin Nat Gas Production and Cash Flow in July with CEO Art Halleran
April 29, 2022 – Trillion Energy to Accelerate Bulgaria Natural Gas Project Commencement
April 5, 2022 – Trillion Receives 40% Natural Gas Price Hike
March 30, 2022 – Trillion Energy Completes Equity Financing
March 17, 2022 – Trillion Energy Will Spud New Nat Gas Wells in July says CEO Art Halleran