Trillion Energy: The Turnaround Plan for this High-Risk, High-Reward Turkish Gas Play

• Trillion Energy  provided an update on the company's offshore gas field in Turkey and plans to recover from recent setbacks and grow production and revenue.
• The company experienced production issues at its offshore gas field in Turkey due to water loading with the 4.5" tubing size. Installing smaller 2 3/8" velocity strings in the wells has stabilized production at 2-2.5 million cubic feet per day per well.
• The company is now generating $1M monthly in revenue and expects to reach $2M soon as more wells are optimized.
• Trillion aims to exit 2025 with $25M/year in revenue and 10-14 MMcf/d production by drilling new low-cost well.
• Future growth potential exists in the company's other assets in Turkey, which could be developed once SASB is stable.

Trillion Energy CEO Arthur Halleran provided an update on the company's offshore gas field in Turkey and plans to recover from recent setbacks and grow production and revenue. After experiencing a steep share price decline over the past year due to production issues, Trillion has implemented a solution to stabilize its gas wells and is now focused on demonstrating steady production to regain investor confidence.

Resolving Production Issues

The core issue impacting Trillion's gas production was water loading in the wells caused by using 4.5" tubing. This caused gas flow to stop once water built up. Trillion's solution was to install smaller 2 3/8" velocity strings using a snubbing unit, which allows continuous production. As Arthur Halleran, CEO of Trillion Energy, states:

"The fact is when you can see in the Akçakoca area where they're starting to find 100 million barrel fields, and they're finding discoveries every well. And also when I look at other areas, there are complete basins that have really good reservoir rock, and have oil staining on surface, and don't have any wells on it. So there's a lot of potential left in Turkey."

With three wells completed so far, initial results are promising. The first well, Akçakoca-3, stabilized at 2.6 MMcf/d compared to 2.0 MMcf/d before. The goal is to maintain stable production over several months to demonstrate the issue is solved. TPAO, Trillion's partner and the Turkish national oil company, is pleased with the results and plans to implement the same solution in their own mature gas fields.

Generating Revenue

With the production issues addressed, Trillion is now selling its gas production and generating revenue. At a price around $9.94/mcf, the company made over $1M/month for the past three months from just two wells. Once a third well is added, revenue could reach $2M/month or $24M/year net to Trillion.

"I think as we slowly add, so we go from $2 million U.S. a month to $2.5 to $3 million, and we're starting to slowly go up, they need to hang on to their shares. This is for the ones that got in at the higher price initially, to recoup some of their investment."

The revenue will be used to pay down some debt and invest in additional well re-completions and potentially adding jet pumps to further boost recovery. The focus for now is on efficient, low-cost operations to maximize profitability from the existing fields.

Growth Potential

Trillion's goal is to exit 2025 at a revenue rate of $25M/year, which would represent around 10-14 MMcf/d net production. To reach this, the company is evaluating drilling additional wells from its platforms, which can be done at a much lower cost than using a jackup rig. Options being considered include using a barge-mounted rig for $25-30K/day instead of $130K/day for a jackup, or coiled-tubing sidetracks of existing wells.

Additionally, 3D seismic that was reprocessed and interpreted with advanced techniques has revealed more potential in the area. Trillion sees the South Akçakoca Sub-Basin as a potential $0.50-1.00/share value asset for the company based on existing well inventory and reserves.

Beyond SASB, Trillion has a 12% interest in the Cendere oil field which produces 135 bbl/d and covers the company's overhead costs in Turkey. It is also pursuing a potential farm-in to the Goksu/Bakuk block, which could hold fields of 300-400 million barrels, pending the results of two commitment wells being drilled by another operator.

Conclusion

After a challenging year, Trillion Energy has implemented a solution to its production issues and is now focused on demonstrating stable cashflow to investors. With revenue being generated from its gas production and multiple low-cost growth opportunities identified, the company offers speculative upside exposure to Turkey's under-explored oil and gas potential. Investors should monitor the stability of Trillion's production and revenue over the next few months to gauge the success of its turnaround plan.

The Investment Thesis for Trillion Energy:

• Exposure to under-explored, high-potential oil & gas basins in Turkey
• SASB gas field value could be $0.50-1.00/share based on reserves/well inventory alone
• Low-cost well recompletions and sidetracks can boost production to 10-14 MMcf/d
• Potential farm-in to billion barrel prospect provides additional upside
• Revenue of $2M/month covers costs, debt reduction, incremental growth capex
• Shares trading at fraction of NAV, attractive risk/reward setup

Actionable advice:

• Monitor Q3/Q4 2024 production and revenue to confirm stabilization
• Look for announcement of initial Goksu/Bakuk well results in Q1 2025
• 2025 target: $25M annualized revenue rate (10-14 MMcf/d)

Key Takeaways:

Trillion Energy has moved past the production issues that caused its share price collapse and is now focused on steady growth in Turkey. By implementing velocity strings, the company has stabilized gas production from its offshore wells and is generating $1-2M/month in revenue. Trillion's strategy is to use this cashflow to gradually boost production through low-cost well recompletions and sidetracks, targeting a $25M annualized revenue rate. The company also has exposure to high-impact exploration through a potential farm-in to the billion-barrel Goksu/Bakuk prospect. While speculative, Trillion offers attractive risk/reward at its current valuation for investors bullish on Turkey's resource potential.

Macro Thematic Analysis:

Turkey remains one of the few underexplored hydrocarbon provinces in the Middle East/Europe region. The country has seen a steady stream of discoveries in recent years, especially in SE Turkey near the Iraq border, with some fields reaching over 100 million barrels. This indicates the presence of working petroleum systems that have seen minimal drilling so far.

Turkey's appeal is enhanced by its favorable fiscal terms, growing energy demand, and net importer status. The government is supportive of new development to reduce reliance on foreign oil and gas imports. Domestic gas prices are relatively stable and attractive at around $9-10/mcf. Infrastructure is well-developed in most areas allowing rapid monetization of new discoveries. The setup is attractive for junior E&Ps who can tolerate the jurisdiction risk in pursuit of outsized returns on new discoveries and developments.