TransAtlantic (NYSE:TAT) reported mixed Q215 results on 7 August, which reflected the decline in oil prices. With no wells completed in Q2, production started to slide from its Q1 peak and fell 4% q/q to 5.9mboe/d. Cost reductions were slightly below our expectations and operating cash flow of $8.0m was below capex of $10.2m, leaving TAT to draw from its cash pile to cover debt repayments. The dip in oil prices back to $50/bbl Brent may lead TAT to conserve cash and further trim capex until the next uptick. As announced in June, it is still looking for JV partners in Turkey and Albania to help fund drilling expenses, however, it is finding it more difficult to attract interest in the current environment. Notwithstanding the tough macro, its asset base in Turkey and Albania remains attractive with significant growth potential.
Bump In The Road To Production Growth
TAT provided its most detailed production guidance yet at the 10 June AGM, although the outlook has likely changed again in the last two months with the $17/bbl drop in Brent prices. As we have pointed out in previous notes, activity and spend are highly flexible and rigs can be dropped or added quickly. Absent any drilling, production would decline to less than 5mboe/d by end 2015 and less than 4mboe/d by end 2016. Assuming drilling resumes (in a $55-60/bbl+ world), output is expected to bottom out at year end before rising to 7mboe/d by end 2016 and doubling to 14mboe/d by end 2017. TAT sees growth coming from all areas including Albania, Turkey’s Molla area and Selmo, where the waterflood programme is being expanded.