BayField Energy - Was it all all Blarney?

Tuesday, Oct 30 2012 by
11

Bayfield was the second child of the team that gave us Burren Energy some years ago. It was launched and funded by ex-Burren management using some of the substantial proceeds they pocketed when Burren was sold to ENI.

Burren had provided a text book example of taking a poorly managed asset in Turkmenistan, knocking it into shape, driving production up and costs down and using the resulting cashflow to expand into other areas. Their second asset was the M'Boundi field in the Congo, which proved extremely successful. I forget who their major partner was there, but when that partner made a very ill timed decision to sell out to ENI , Burren was able to exercise its pre-emption rights to acquire a second slice of the well developed cake at a bargain price. Eventually ENI decided it wanted the whole of the gateau and bought Burren lock stock and barrels.

The Burren management team then retired to a life of idle luxury. After a while that palled. After all you can't spend your whole life polishing your Aston Martin's lithe bodywork, exfoliating your yacht's elegant bottom or getting hot and sweaty with your personal trainer. And so the restless intellect and creative imagination of the Burrenites devised a cunning plan. Why not set up an E&P in Trinidad? Then they could do what they were so good at and still have it large at the marina. Trinidad Marina is after all an ideal location for those who wish to combine an interest in lithe bodywork, elegantly exfoliated bottoms and hot and sweaty physical activity. And it is a convenient place to park a seismic survey ship and a drilling rig or two.

I was one of those who did well out of Burren. I encountered Finian O'Sullivan, the CEO, at an Oil Barrel conference and was impressed. He expended more energy in 5 minutes on stage than I do in a normal week. I was so impressed by Finian and the story, that I went out at coffee time and bought the shares. Over the next few years I traded a little around a core position which built as time passed. By the end, I had a holding which was significant to me and the eventual exit was a big pay-out.

As an investor I've not had a good time these past few years. What suits me is finding a story/management team that I beleive in and holding fast as it unrolls. Dana/Burren/Hardman kind of thing. But in recent years many of my ideas have not so much unrolled as unravelled. So it was very pleasing when Bayfield emerged last year with Finian O as Chairman.

Management team with great track record - tick
Plausible assets - tick
Proven, producing reserves - tick
Proven, appraised discoveries waiting for development - tick
Run-down operation ready for the Turkmenistan treatment - tick
Potential fronter acreage with inside track - courtesy of Russian billionaire - tick
Additional acreage in pipeline - tick
Management aligned with shareholders - tick
Founder shareholders in for the long haul - tick
Founders/managers with large positions and LTBH approach - tick
Good relationships with Trinidad Govt - tick
Access to additional funds when required - tick (at least I thought so)

What could possibly go wrong?

What indeed? Exisitng platform infrastructure was found to be much more decrepit than had been realised - increasing future funding requirements. An appraisal well drilled into an established discovery came back with a very disappointing result. And another. That meant that expectations of increasing production cashflow in the short term were dashed. An attempt to raise additional funds in the market failed thanks to the hole in the economic ozone layer around the world. Even after all this, I assumed - oh so naively - that the wealthy founders/managers would chip in enough additional funding to bridge the gap - or at least enough to persuade the rest of us shareholders to support a rights issue.

Instead of which they've effectively given up.

It simply had not occurred to me that such seasoned, battle hardened veterans, who had taken on this project with their eyes open, would capitulate so quickly in the face of a few setbacks, none of which could be termed unusual. They appear to have been banking on a smooth and trouble-free ride rather than a difficult struggle. They obviously had insufficient confidence to invest additonal funds - which surely discredits the investment case for everybody else.

So, enter stage left the privately owned Trinity Exploration & Production and an agreed reverse take-over. Following which the BEH management team will be out of the door and down the road with the sole exception of Finian O who will take a place as a non exec.

So who is Trinity?

To my surprise it is a vehicle for Bruce Dingwall - founder and CEO of Venture Petroleum. He turns out to be a Trinidadian born and bred. Who knew that? Having left VPC he bought out VPC's Trinidadian assets and used them as the foundation for Trinity. He apparently lives in Scotland but runs Trinity by remote control.

I am afraid that I was always sceptical of Bruce's style at Venture. I thought his successor did a better job than he did. Haven't waded through the detail of Trinity - as a private company, it's less transparent than BEH. I am bemused to see that it employs more than 200 employees. Seems rather a lot to produce 2400 bopd - that's just 12 bopd per person.

BEH is suspended whilst the transaction cranks its way through the system. My inclination is to sell my sadly diminished holding at the earliest opportunity. I will read whatever emerges before then, but I'm inclined towards the low end of the clapometer, I'm afraid.

Anyone out there with more positive views?


Disclaimer:  

The author may hold shares in this company. All opinions are his own. You should check any statements that appear factual and seek independent professional advice before making any investment decision.


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Trinity Exploration & Production PLC is an independent oil and gas company. The Company is engaged in upstream oil and gas exploration and production, with the focus on Trinidad and Tobago. The Company operates 10 licenses in Trinidad, including two licenses in the Gulf of Paria, offshore Trinidad’s West coast, and eight onshore licenses. These licenses cover a total acreage of 12,581 acres and operate approximately 300 producing wells. Its Galeota block is situated within the established oil play of the Columbus Basin in shallow waters off the south-east coast of Trinidad. The exploration license for its Pletmos Inshore block covers an area of approximately 11,000 square kilometers. The Company holds 100% interest Pletmos Inshore block. Its onshore field includes Fyzabad-2, Guapo-1, Tabaquite, WD-2, WD-13 and WD-16. Its Offshore West Coast includes Brighton Marine. more »

Share Price (AIM)
46.75p
Change
1.1  2.5%
P/E (fwd)
n/a
Yield (fwd)
n/a
Mkt Cap (£m)
43.5



  Is Trinity Exploration and Production fundamentally strong or weak? Find out More »


6 Posts on this Thread show/hide all

Zetaboy 30th Oct '12 1 of 6
1

Commiserations. Only bit to add is that the employee to bopd ratio looks about right for Trinidad if RRL's figures are anything to go by - I think they actually have more staff on site now for about the same output.

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emptyend 31st Oct '12 2 of 6
4

Hi tournesol,

Very interesting and beautifully/amusingly written thread header :-)

One of the big problems with the sort of scenario you describe re Burren and Bayfield is that it is really difficult to tell whether management is genuinely superior or whether it has simply got very lucky on its first venture. And then there is the question of exactly HOW they succeeded first time round - can they assemble the assets, finance and skillsets to enable them to replicate their earlier success? These are really important questions for investors in Bayfield - and in other companies such as Parkmead (LON:PMG) and Fastnet Oil & Gas (LON:FAST), both of which have also been started by previously-successful O&G entrepreneurs who have sold out earlier ventures. And they aren't alone either....many in this business have a "history".

As you know, Parkmead (LON:PMG) rocketed from under 1p per share to over 30p per share in very short order (pushed to a multiple of asset value -then c4p - by the small army of people who had made a small fortune with Tom Cross on Dana) and the initial euphoria has since blown off as Cross gets on with the nitty-gritty business of assembling the assets that he hopes his people can deliver value from. The shares have been in the low teens for most of the last year, as they slowly regain some contact with reality.

Similarly, I saw Fastnet Oil & Gas (LON:FAST) present at Oilbarrel this July when their shares were 11p. It was a good presentation, full of hope and (arguably) a generous helping of blarney. Soon afterwards, the shares touched 17p before consolidating over summer - but this month they have pushed sharply higher to 27p and today Fastnet Oil & Gas (LON:FAST) have announced the executive appointment of Carol Law, about whom they say:

During her career, Carol has been a member of teams responsible for discoveries in Mozambique (Rovuma Gas), Ghana (Jubilee), Brazil (multiple Campos Basin discoveries), Alaska (Nikaitchuq), China (Bohai Bay) plus Angola, the Gulf of Mexico and others. Most recently Carol was Exploration Manager - East Africa & Caribbean for Anadarko Petroleum Corporation and was responsible for the team that discovered the Prosperidade gas complex in Rovuma Area 1, offshore Mozambique

...which is a very serious set of professional credits for any explorationist!! But it raises the question in my mind.....was Carol Law more important to Cove's success in Mozambique than Cove's own team (Cove provided three of the present board at Fastnet)? Very difficult if not impossible to say from the outside - but Law obviously is considered important by Fastnet Oil & Gas (LON:FAST) as you can see from the terms on which she is being employed.

So.....having discussed a couple of analogues for Bayfield, I return to the topic. I don't know a great deal about Bayfield, or about its people or assets.....but it seems to me that the key questions for you to answer are:

  1. Does Trinity have the management team and skills to take better advantage of Bayfield's assets?
  2. Does Trinity have the basic management capability (and the sort of interest and focus from the CEO and Chairman that I have observed with Tom Cross at Dana or Finian O-Sullivan when at Burren)? Did Dingwall just get lucky at Venture (rising oil prices etc floating a relatively unpromising boat?) or is he set for a dynamic come-back after a period of relative boat-bottom polishing or whatever?
  3. Do they have a proposition which is capable of attracting external finance in a market which is replete with opportunities and relatively short of finance?

 

I've no idea. But in your position (of some prior knowledge) I'd be looking for a very strong steer within weeks of re-listing that Trinity management is 100% on the case and has credible, financable plans......because, as both Cross and John Craven have shown with their follow-on activities, you can't afford to have down-time if you have serious ambitions second time around.

Not much help I imagine.....but good luck with making the right call!

ee

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ohisay 31st Oct '12 3 of 6
2

Hi T .I've read lots of your posts over the years.
I too made lots of money on Burren but BEH struck me as being dull as dishwater for the market cap it floated at.
My general comment - as I know you've had a few bad losses is - reengage your right brain side.My observation is its been withering on the vine.

http://www.wallstreetoasis.com/blog/right-brain-vs-left-brain-investing

Best..

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darlocst 1st Nov '12 4 of 6
2

Surely you mean the left side ohisay?

I held BEH for a while but quickly exited when the production figures disappointed, it was obvious that without the production ramp up they would burn through their cash very quickly. This new entity holds zero interest for me, I struggle to see real upside potential.

A general observation, the bull market in O&G stocks has long since disappeared. The phenomenal returns from the likes of SOCO International (LON:SIA) & Dana (over & above expo success) were, in large part, down to the increase in the oil price and the lag effect in terms of associated costs (oil services, contract terms, etc) catching up. That one off effect isn't going to happen again. There are good individual stories around but I don't see them as buy & hold and I believe anyone running a O&G/commodity concentrated portfolio is destined to under perform the wider market.

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tournesol 1st Nov '12 5 of 6
4

Ohisay - leave my brain out of it - I usually do :~)

Having said that I think darlocst is right and you were referring to the wrong hemisphere - no?

As for D's comment re O&G focus - I have to agree. I've been making the same mistake as the second physicist looking for the lost keys. The good news is I've recognised that and am half way through the realignment/rebalancing of my portfolio towards a non-oily centre of gravity - I'll say more about that when I get time. For now let's just say other ideas have captured my preference, but I'm trying not to bank on them too much.

T

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tournesol 28th Jan '13 6 of 6
2

The question posited in the thread title has now been answered to my satisfaction. I reckonn that's a yes. Accordingly I have folded my hand.

i think I'll try roulette instead.

5 bob on red please.

What's that? £100 minimum? Oh heck.......

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