Discounted & Misunderstood Story Creates Deep Value Setup
SPECULATIVE BUY - C$0.75 Target Price
High-Level View: Trillion is a Türkiye-focused producer, with its main development asset being the South Akcakoca Sub-Basin (“SASB”) offshore Black Sea gas field, and a potentially high impact oil exploration opportunity in the southeast part of the country in the Cudi-Gabar region. The team is led by seasoned oilman, Dr. Arthur Halleran, who has over 40 years of experience across various countries and was a founder of Colombia producer Canacol Energy (CNE-TSX, NR). Overall, we believe that if the team can deliver on volumes at SASB, which have been challenged but resolutions are being implemented, the stock will look deeply discounted on valuation with substantial upside for potential for investors today.
Trillion has successfully drilled five new wells and one recompletion well in the SASB field with 100% success rate. As the wells came onstream in Q223, volumes in the field increased by 42% from 5.74 MMcf/d in Q123 to 8.16 MMcf/d in Q223 (100% WI). That said, the Company faced substantial production constraints on two new wells which resulted in volumes being below near-term expectations.
Trillion kicked off a resolution program in Q323 to resolve these issues, which had nothing to do with the rock but with water loading being an issue in the new wells in the Akcakoca field. This resulted in a successful update on October 30, with production increasing to 14.4 MMcf/d (7.056 MMcf/d net to TCF) on a temporary basis, and the Company is looking at installing pumping to get production from the initial six wells to ~15 MMcf/d (gross – expected in Q124). We saw this as a solid update but due to unforeseen challenges at a institution likely involved with the stock, TCF was under substantial undue pressure.
2024. Given the current valuation in the stock, we see this potential as a free option. producers and Trillion can earn-in a 50% WI in three blocks with drilling expected to start in southeast Türkiye. The Cudi-Gabar region has seen successful exploration results by other Outside of SASB, the Company secured a farm-in opportunity for oil exploration in
Company Thesis: With the recent equity raise of C$10.8M (Echelon led financing), we believe commentary about funding and the 2024 capital program misplaced. Trillion has flexibility on the program, mainly from how many exploration wells at Cudi-Gabar (we are currently forecasting one well in 2024) On our 2024 forecast on strip pricing, we see funds flow of $30.1M and with the raise, we believe the Company is in solid position to execute on a forecasted $29M capital program. That said, we do believe that continued success on rampingup production from the current wells will be key to making this funding go around but given the recent success we believe management is on track to deliver.
Valuation: Given the issues around Q223 production and the market anomaly impacting the stock in late October, Trillion has given a lot back in valuation. Currently, we see a great riskreward setup in TCF, with our 2024 valuation standing at 1.3x EV/DACF and a substantial discount to our 2P NAVPS of C$2.24. With that, we are initiating on Trillion with a Speculative Buy rating and C$0.75 price target for a 159% return potential based on a 2.5x 2024 target multiple. We highlight key milestones that would support a more aggressive PT range of $0.95-$1.25 on page 5. Given that we have already seen some success on the SASB turnaround, we believe that hitting 15 MMcf/d at SASB and solid Q124 on volumes will be a key catalyst for the market, and if successful, we believe that TCF will recoup that valuation deterioration over H223.
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Trillion is an oil and gas producing company with multiple assets throughout Turkiye. The Company is 49% owner of the SASB natural gas field, one of the Black Sea’s first and largest-scale natural gas development projects; a 19.6% (except three wells with 9.8%) interest in the Cendere oil field; and three oil exploration blocks located in Cudi-Gabar Oil Petroleum Province, SE Turkiye. More information may be found on www.sedar.com, and our website.