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The Black Sea’s Only Low Cost / High Return Gas Play

Jon Brown Jon Brown, Stockhouse
1 Comment| February 2, 2022

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(Image via Trillion Energy International Inc.)

Access to energy, especially natural gas, and its costs, are topping headlines and government agendas around the world.

Click to enlargeEnergy is being used as a diplomatic instrument in global relations and a trigger for global inflation, on top of its purpose to power our vehicles and heat our buildings.

The supply issue following the emergence of COVID-19 has led to severe price hikes.

Gas consumption is reaching record highs across the globe. Turkey, for example, is increasing demand amid harsh winter conditions, after neighboring Iran cut supplies.

There is strong potential for massive gas and oil reserves from under the Black Sea.

Countries had shown little interest in the sea that sits between South East Europe and Western Asia, but that has changed in recent years due to this rapidly evolving energy landscape.

Companies in the Black Sea are currently expediting their work to start using the natural gas discovered there. This relatively under-tapped region is mostly populated by oil and gas majors, but one junior in the midst has also been fortunate to capitalize on gains thanks to a project the team had acquired.

Trillion Energy International Inc. (CSE: TCF, OTC: TCFF, Forum) is engaged in gas production with multiple assets throughout Turkey and into Bulgaria. The Company is 49% owner of the Black Sea Natural Gas Project, South Akçakoca Sub-Basin (SASB) natural gas field, one of the Black Sea’s first major natural gas development projects; a 19.6% (except three wells with 9.8%) ownership interest in the Cendere oil field; and in Bulgaria, the Vranino 1-11 block, a prospective unconventional natural gas property.


(Image via Trillion Energy International Inc.)

In an interview with Stockhouse Editorial, Trillion Energy’s Chief Executive Officer, Art Halleran, explained that the biggest issue is that the utilization of natural gas in Turkey is going to continue to increase importing more than 90% of its gas from external sources, predominantly Russia, and there's pressure on other buyers on that gas.

Trillion Energy recently received a price increase for sale of natural gas to a record high of approximately $13.07 (USD) / thousand cubic feet (mcf) effective January 2022. The average natural gas sale price during 2021 was approximately $8.84 (USD) / mcf. In comparison, another company on the Venture Exchange, Touchstone Exploration (TSX-V: TXP) in South America, which trades at 10-times the multiple (with a market cap of $335 million (CAD) vs trillion’s $35 million (CAD) market cap), received only $5.00 (USD) / mcf)

CEO Halleran noted that this is why the company has always been in a high gas environment in Turkey all the way back to 2007.

Click to enlarge“We see that in the future, this $13 … I see as a cycle. But I don't use that high price in our economics. I use the $8 to $9, historically what we've gotten, but it's an independent price forecast. So, any, any more squeezing of the supply is just going to keep the prices unreasonably high. Which is not bad for us. It could actually be good, because we are going to be doing a financing and are drilling in a really high price gas environment.”

Trillion believes a trifecta of circumstances have resulted in the sharp price increase, including increased demand due to a cold winter, alternate energy sources being shut down (such as several nuclear power plants in Germany), delays in increased supply of natural gas from the Nord stream pipeline etc.

The company believes peak demand for natural gas will not occur for some time and that natural gas is the single most viable long-term solution for European energy over the next 20-plus years.

Trillion recently assessed its natural gas resources and reserves effective October 2021. The company is currently reassessing its year-end reserve and resource values and it expects the recent price increases to favourably impact the resulting economics.

Speaking in reference to the company’s plans for 2022, CEO Halleran added that the recent high gas prices illustrate the high value and strategic focus of the SASB natural gas redevelopment to Trillion.

“The company is in the process of negotiating an MOU for the rig for drilling to commence sometime later this year. This year we expect to be transformative bringing significant value to shareholders.”

The only junior in the Black Sea producing natural gas:

Trillion Energy acquired the Black Sea Project in a distress sale from a company that found itself in a troubling fiscal situation in the Ukraine, and this was just one of their assets. CEO Halleran noted that it did not have any recent third party reserve report at the time, so there was no value given for any gas on the project and the infrastructure and facility were written off because they were at just above economic limit.


(Image via Trillion Energy International Inc. Click to enlarge.)

Where the company sits in the Black Sea is in the shallow water, only about a hundred metres deep, but the geology and the reservoir allows the Trillion team to carry on basically right to the big discoveries.

From 2008 to the present, the SASB gas field has produced approximately 41 billion cubic feet equivalent (bcf) of Natural Gas (100%) shared between the project partners. Phases I & II of the SASB Project were developed between 2008 – 2012 at a total cost of $608 million (USD) which was invested by the project partners at the time. From 2018 to 2019, Trillion Energy and its 100% owned subsidiary, Park Place Energy Turkey Ltd. (PPETL) embarked on an assessment and study for the future potential of the SASB gas field.

CEO Halleran detailed the history of the project back to 2007, when the previous company built the first few platforms and produced the gas to it. In 2011, the company had another round of drilling and ran another platform.

By the time they had four platforms, they drilled and produced four gas fields to the existing infrastructure, where they had built the onshore gas processing plant, but they had also identified and drilled other gas pools, but never ended up putting those into production.


(Image via Trillion Energy International Inc.)

Those gas pools are what Trillion intends to pursue, bringing on the other four discoveries through the existing platform. The team is going to drill off the existing platform, as it is cheaper and faster.

Trillion’s predecessor never pursued the larger structures because they thought there wasn’t enough gas generated to fill the larger structures. However, the Turkish government owned company Türkiye Petrolleri A.O. (TPAO) recently unearthed excessively large structures just north of Trillion’s operation – more than 11 trillion cubic feet (tcf) in natural gas – the largest find in the black sea’s history and one of the largest ever in Europe. CEO Halleran and the team can confirm that these largest structures are peripheral to the Black Sea Project.

Currently, Trillion Energy has 17 wells planned where production starts almost immediately with wells upon spudding, producing 4 MMcf/d to 7 MMcf/d each. There is near term profitability from this 17 well development cycle starting this year and concluding in 2024, when production is expected to peak from the current development plans.

He called the discoveries made by the teams as a “string of pearls” - there’s not just usually one, there will be a string of discoveries along this one fault line and then there'll be another string, and another ….

2022 outlook:

Trillion Energy is six months away from ramping up a gas deal in a big way and the team is eager to sign off on financing.

The company recently redomiciled from Delaware to a British Columbia corporation, a move to reduce costs and regulatory filings as well as secure brokered financing with a Canadian investment bank to drill and produce its SASB Gas Field.

Other advantages include enhanced access to capital markets, an increase in potential investors, and the reduction or elimination of certain US resale restrictions on common shares from previous private placements. The repatriation did not result in any changes to the board, management, or day-to-day conduct of the business.

Having completed the move, CEO Halleran stated that the plan is to now expeditiously complete financing and secure the drilling rig contract.

“Current natural gas pricing is at historic highs in the region which bodes well for our SASB natural gas drilling program we expect to commence later this year.”

Meet the team:


(Image via Trillion Energy International Inc. Click to enlarge)

CEO Halleran was a director with the company prior to his leadership role. He has a long history with the company, but what made him decide to take the top position was this asset, the Black Sea SASB Natural Gas Project.

“When I talk about the asset, there are four important things:

One is the infrastructure, which we have.

Number two is the geology that’s sitting there, the resource. We have that.

The third important thing about an asset is the existing management. When I mean the existing management, I'm talking about Turkey. Our management there has been there since the company started. [GM] Kubilay has probably been there since 1999, he was there when they did the first exploration drilling. He's still there, his relationships are the same. Our accountant person, everybody, they've they’re there. That's very important. It can basically run by itself.

The fourth one is the political situation and the timeline. If you look at Turkey’s history, they have never welched on a deal. They haven’t. We have paid the same 12.5% royalty forever. They are a very fair country to work with and they’re fairly stable and the reason why they’re stable is they’re actually large and they are part of Europe.”

Investment conclusion:


(Trillion Energy International Inc. stock chart January 2020 to January 2022. Click to enlarge.)

Trillion Energy’s shares are significantly undervalued relative to 3rd Party NPV10 valuations at $169 million (USD) for SASB (not including additional 13 prospects within reach of current infrastructure and oil property revenues).

The Projected EBITA after all costs are estimated at $1.8 million (USD) a month by August 2022; $3.7 million (USD) a month January 2023 and peak at $7.6 million (USD) a month April 2024 based on October 31st, 2021, GLJ pricing and forecasts. Since then, gas prices have increased to $13 / mcf in January 2022 (25%).

Similarly, the company trades at a small fraction of its peers, such as NG Energy (TSX-V: GASX) (market cap $208 million) and Touchstone Exploration, with Trillion having a market cap of only $35 million (cad). As the company generates shareholder value through its rapid production ramp-up, funding for drilling programs will come from a combination of brokered equity financing, debt, and internal cash-flow from production.

Looking at Trillion’s stock price performance, its shares have seen 174.6% growth since this time, last year. It is just as engaging a story to look ahead; half of the company’s projected earnings are two-year earnings. There is a robust value proposition here when the future earnings are factored in. There is upside for shareholders judging by the current net present value that Trillion Energy offers and that is likely to grow once it is unlocked following this project’s success.

For more details on this company and to keep up with future updates, visit trillionenergy.com.


FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.



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