Raymond James Report-March 26thThough some may find this interesting.
Cheers!
• Chesapeake is Trinidad’s largest single customer; EnCana (ECA-T;
OUTPERFORM) is a close second. In the strongest possible terms we can use,
our view is that the most direct connection that can be drawn between Chesapeake’s
drilling programs and Canadian oilfield investing is through Trinidad common
shares. Trinidad has between 14-16 drilling rigs working for Chesapeake today
(nine working for EnCana). It should say something about the quality of Trinidad’s
equipment and services that two of North America’s top oil and gas operators are
also Trinidad’s top two clients.
• We estimate that Trinidad will be free to allocate $111 million of its 2008 cash
flow to new growth initiatives, such as we are discussing here, without
increasing its debt level or tapping the market for equity capital. This roughly
corresponds with about seven high-performance deep-capacity drilling rigs, give or
take. While the return on newly invested capital (drilling rigs) would far outstrip
the cost of this capital, we suspect the less quantifiable cost to Trinidad could be the
loss of its remaining financial flexibility in the eyes of its equity investors. The
equity markets would likely balk at the higher debt levels, and confer Trinidad with
an even more discounted multiple. For this reason, we believe that Trinidad will
endeavour to contain its growth to the most strategically important and financially
impactful initiatives.