Hottest Energy Disrupter Stock of 2020?

Trillion Energy (OTC:TCFF) - (CSE:TCF) - (Frankfurt:3P2N)

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Green Energy and Small, Niche Market Disruptors shine as “big oil” fails to garner returns for investors

  • Trillion adds $2/share in reserves and resources in 2020;
  • Proximate to one of Europe’s 5 largest offshore natural gas discoveries -the Tuna Gas Field, Black Sea Turkey, discovered August 2020;  
  • Blue Sky potential in Black Sea clean natural gas;  

The recent pandemic brought with it both a collapse in energy prices and stock markets, followed by a massive run-up in stocks to which big oil majors like Lukoil (OTCMKTS: LUKOY), Gazprom (OTCMKTS: OGZPY), Total S.A. (NYSE: TOT), Exxon (NYSE: XOM), BP plc (NYSE: BP), Chevron (NYSE: CVX), and Phillips 66 (NYSE: PSX) have only marginally benefited from. With the energy shakeout continuing, unexpected new winners have emerged servicing regional niche markets who are poised to make serious cash flow.

Our top pick amongst energy disruptor stocks is not big oil or a high flying solar or electric car company like Tesla, rather, the green energy company Trillion Energy (OTC: TCFF) (CSE:TCF) (www.trillionenergy.com) which stands out as having one of the best intrinsic asset valuations in the entire sector and who is posed for rapid revenue acceleration and transformation. Its stock price is so undervalued, an enormous opportunity presents.  

Capitalizing on Europe’s new energy source in the Prolific Black Sea

It has been long generally accepted that the Black Sea holds the key to Europe’s energy future, the only question remaining was who would lead the charge. The region, especially Turkey, a country of 85 million people, commands some of the highest gas prices in Europe.

“Big Tuna” Gas Discovery leads to Trillion Energy surfing in the wake of Giants

During August 2020, TPAO, Turkey’s national oil and gas company announced a massive discovery of natural gas in Tuna-1 at a total depth of 4,525 meters (14,850 feet), with more announcements at deeper zones to come, according to Turkish officials. The Tuna discovery is cited at between 9-23 trillion cubic feet of gas (TCF), which instantly transformed Turkey into a regional energy power player. The find is the largest in Europe in 30 years.

Previously, the Turkish economy was beholden to Russian gas importing over 95% from Russia, Iran, Azerbaijan, and Algeria. The tables have changed, Turkish President set an ambitious plan to have the resource developed by 2023 and indicated the reserve was part of a much bigger resource and set horizons for Turkey to become a net exporter of energy. Turkish officials are rushing to capitalize on the discovery. 

Trillion is smack in the middle of the Black Sea basin where the massive Tuna discovery was discovered, which forays the little-known company into potentially a key energy strategic player. Trillion Energy owns four gas fields proximate to Tuna, a labyrinth of interconnected gas pipelines and platforms bringing gas to shore, located in the South Ackajoca Sub-Basin (“SASB”) South Western Black Sea. 

After the Tuna discovery was announced, it has become increasingly clear to the analysts at Fortune that the TPAO has no experience in deep-sea gas production and would likely need to enlist a major oil company to exploit the field.  Trillion is best positioned as TPAO’s suitor for the massive Tuna field as it is the only offshore producer in Turkey in the Black Sea, having steered a $600m + budget for the SASB initial development. TPAO and Trillion have a 13-year working partnership on SASB. SASB is the closest and only gas facility which would enable gas to shore for Tuna field at this time. There are logistical challenges getting the Tuna gas to a usable pipeline and Trillion’s SASB pipelines and platforms could be the key in quickly unlocking the potential of the Tuna-1. Critical interests are already very closely aligned. 

A quick look at the map shows that it might make economic sense to link up with the existing SASB field which is tied to a gas processing plant and already linked to a pipeline. Tuna is due north of SASB, between the mainland and the field. Trillion could potentially be the recipient of significant transmission fees should Tuna gas be connected to SASB’s facilities.  

The story gets even more exciting because based on proximity and geology, Trillion could drill potentially make deeper gas discoveries into similar large gas structures if they transcend into the SASB’s license area. 

Trillion adds $2/share in Reserves and Resources this year alone on SASB

SASB was the first and largest scale natural gas development project in the Black Sea region to date with a total investment of USD $608 million for 23 wells, producing over 41 billion cubic feet (BCF) of natural gas. Cumulative gas sales have reached US $350m, 49% to Trillion Energy. These are no small accomplishments.

SASB GAS FIELD RESERVOIRS
SOURCE: GLJ PETROLEUM CONSULTANTS

Recently, independent reports prepared by GLJ Petroleum Consultants have estimated the intrinsic value proposition of Trillions’ gas prospects and reserves in SASB. According to Trillion’s news release of June 23rd 2020, Trillion’s P3 reserves increased by 1,992% year over year representing US $1.29/common share for 3P (proven probable and possible reserves). A more conservative figure is the P2 Proven and Probable reserves, which were up 1,128% or US $.77/common share. On August 24, 2020 Trillion announced an increase in its gas resources on SASB based on an evaluation of six additional prospects. The total value increase announced for SASB (combined prospects and reserves) amounted to US $1.45/share (CND $1.93/share) for the “most likely” scenario.

Based on GLJ’s reports, net cashflow (before taxes) from developing SASB could reach US $230.5 million from risked resources (high case) on top of US $105m for reserves (P2-proven and probable) for the life of the wells. Relatively speaking, these figures are a huge step forward for a company whose stock trading is trading at under $.10 per share. 

Using GLJ’s “most likely” figures, which combined are net US$1.45/ share discounted cash flow for Trillion; and based on 117m shares issued and outstanding (excluding warrants and options) and a share price of $.06, only 4.1% of the intrinsic value based on GLJ’s reports is reflected in Trillion’s share price at this time.  

In contrast, other similar companies such as Touchstone Explorations (OTC:PBEGF), a niche market natural gas company with a big discovery in Trinidad which GLJ recently prepared a reserves evaluation for having a “most likely” value of US$390m (see Touchstones July 7 2020 news release) trades at a market cap of US$183m – 47% of the intrinsic value given by GLJ. 

Touchstone share price has soared this year, up from $.29/share Jan 2, 2020, to its current price US $.98/share, a run of 339% this year alone. If Trillion traded at 47% of GLJ’s assessed values of US $157m (US$74m reserve and US$83m resources) like Touchstone does, that would be a market cap of $ $73m for Trillion –over 10 times it current market cap

That’s not all, as the Trillion has eluded in news releases to an additional 7 prospects not yet assessed by GLJ on SASB and also the potential for deeper gas exploration, in light of the nearby Tuna discovery. Art Halleran CEO commented: 

“In light of the recent discovery by our partner TPAO and their proof of massive volumes of natural gas generation from source rocks in the Western Black Sea sedimentary basin the same basin SASB is contained within, we plan to evaluate the geological trends in deeper zones of SASB to identify prospects to drill and test for gas. Seismic has already identified anomalies warranting further assessment where we plan on developing a geological model for potential undiscovered deep gas. Our license rights extend deeper into the SASB Field than what we have ever drilled to date.” (Press Release August 25, 2020)

New Wells and production imminent for SASBTrillion Energy has announced ambitious plans to develop the SASB gas in a big way. In its June 30 press release it announced it was planning redevelopment centering around four existing offshore platforms where several known gas deposits are targeted including previously drilled formations:  

“4 undeveloped, proven discoveries previously drilled, but have yet to be tied into pipe and which have not yet been produced.”  

According to its press release, Company’s plan is to directionally drill/re-drill 8 wells off of the existing platforms. This process is supposed to take a brief 45 days for each well and cost $26 million (net to Trillion).

SASB GAS FIELD PLATFORM AND PIPELINE INFRASTRUCTURE

A historical look at the SASB field shows a historical 83%+ drilling success rate which really helps to de-risk the development.  The past drilling was based on 3D seismic studies done over 10 years ago, but technological advancements can now further refine the targets, thereby further improving the success rate. 

Typically, the deeper water tends to cost more so it’s important to highlight that most of the targets are at a very manageable depth of 90m drilled off of existing platforms and infrastructure to keep costs down.  

Arthur Halleran CEO stated in the news release of June 30, 2020, that he has been in touch with key potential lenders who are interested in evaluating the project. Development financing for SASB, thus, may well be on the near field horizon. Halleran has been immersed in the energy business for 38 years, working for names like Chevron, Rally Energy, Petro-Canada. He was co-founder of Canacol Energy (OTC:CNNEF) which recently traded at $2.60/share.  

The likelihood of a finance deal is high because of the strength of the project and they have a stalwart partner, Turkish National Petroleum Company; an experienced executive, Art Halleran; and a project liquidation value significantly higher than the amount financed giving the banker a robust contingency plan. 

Trillion leads the way compared to other potential energy disrupters  

Trillion leads the pack in the race to develop the vast gas reserves of the Black Sea, ahead of US institutions such as Carlyle Group LP’s $400m Midia Gas Black Sea development located off the Romanian coast, with 320 BCF of natural gas, which is expected to commence production next year. Then there is the Neptun Deep owned by ExxonMobil who has invested approximately $700 million to date which is estimated to produce 1.47 – 2.97 TCF but the project has not got off the ground yet. Other small, potential energy disruptors, such as Recon Energy (OTC: LGDOF) (TSX.V: RECO) have also made progress this year by completing a recent funding and planning exploratory drilling for 2022.  

While other energy company’s struggle to find gas, bring key fields online and profit in times of faltering energy prices, it is notable that natural gas prices in the Black Sea region command substantially higher pricing than European or North American markets, 200% -300% higher. Trillion is set apart from the pack, as its gas sales prices are linked to BOTAS, thus, realizing higher prices. The following table shows the BOTAS (Turkish) gas pricing vs US “Henry Hub” pricing:

A little bit of gas makes a lot of money, a lot of gas earns $$$ 

Natural gas sold at BOTAS prices can be tremendously profitable. The following chart indicates the expected “net realized gas price” ie the profitability (before taxes and overhead)/ MCF) of gas sold from SASB, assuming a full redevelopment of 17 wells occurs, at various projected gas sales prices. The resulting projected profitability is multiple times higher than gas sales prices in the US, which is currently $1.82/MCF and yielding much skinnier profit margins.

Summary

Trillion is a niche market natural gas play with a stellar asset trading at ridiculously low prices, more than 20 times below its intrinsic value, as assessed by independent expert.  Their reputable independent engineering firm, GLJ estimated it’s priced 10 times below its peers such as Touchstone Explorations. On a conservative valuation basis, the existing, combined reserves and resources for SASB are valued at US $157m by GLJ which equates to about US $1.45/share. There is also additional upside when the company proves out new discoveries on existing leases.

Should this absurd value proposition not resonate with shareholders, the next major catalyst for value increase is the financing of the project.  Even if a completed project financing fails to excite investors, then added revenue ramp up is only 7 short months away in 2021 when development occurs.  Revenue generation always corrects valuation rifts because the profitability provides a vehicle for a company to buy back its own stock once the Company’s success is proven. Trillion Energy is one of the most mispriced assets in the energy sector and the author challenges anyone out there to find a bigger unjustified rift between price and value. Get ready for the price correction and double take. 

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