Warren Buffett has built his nearly half-a-trillion-dollar Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) conglomerate in part by swooping in while Wall Street is panicking and making acquisitions that deliver big returns in the long run. The Oracle of Omaha somewhat surprisingly hadn’t struck any deals throughout the COVID-19 pandemic, until breaking the silence this week by making his second large investment in energy in just over a year, paying $9.7 billion for the natural gas transmission and storage business of Dominion Energy (NYSE: D).
In April 2019, Berkshire invested $10 billion in U.S. oil shale play Occidental Petroleum (NYSE: OXY).
While Berkshire focused on natural gas transmission and storage rather than energy extraction or sale this time, his interest in energy over the last year or speaks to his opinion on the future, considering the Berkshire CEO is known as a supporter of the Paris Accord, which is meant to reduce emissions. In short, it looks like Buffett sees short and long-term upside after oil and gas, especially after both plummeted due to demand concerns owing to COVID-19 shutting economies globally.
The novel coronavirus crippled natural gas demand in the U.S., sending prices to a 25-year low, with the International Energy Agency (IEA) forecasting usage to remain sluggish for the rest of the year. Every country is going to be see demand dented, although the hardest hit likely will be mature markets, such as North America and Europe. The IEA says the recovery will be slow because of protracted reverberations from COVID-19.
A bright spot for natural gas may be in the form of the Middle East, Asia and Africa, where where natural gas prices are up to 400% higher than in North America and supply is still limited
That could present an opportunity to small producers like Trillion Energy International Inc. (CSE: TCF) (OTC: TCFF) to continue expanding its production levels focused in and around the Black Sea. With pumps already running offshore Turkey and projects onshore as well as in Bulgaria, the company is centrally located to supply these emerging markets.
Trillion's Akcakoca Gas Production Platform, SASB gas field, Black Sea
Oddly enough, despite Turkey estimating that the Black Sea hosts some 10 billion barrels of crude oil and 70.6 trillion cubic feet of natural gas, progress below the water has been slow, leaving the littoral countries of Romania, Bulgaria, Turkey, Ukraine and Georgia dependent on energy imports. Trillion has a clear first mover advantage with 49% ownership in four platforms and 10 wells tied-in in the South Akçakoca Sub-Basin (SASB) in the Black Sea close to Turkey’s shore.
Moreover, the countries pay much higher prices for natural gas than European and North American counterparts to the tune of between US$6.50 - US$7.60 per mcf.
“It’s no secret that market conditions globally are challenging, but we feel that we are in a very advantageous spot,” commented Trillion Energy CEO Arthur Halleran in a phone conversation with Baystreet.ca. “We have all the equipment and infrastructure already, including the nearby Cayagzi processing plant. Now we’re going to do some re-work to get some more gas behind the existing wells and drill four more from the platforms to really ramp up production with minimum Capex.”
“We already are confident we have buyers for everything we can produce and then some,” he added.
The re-development work is staged, which will increase revenue throughout the program, expected to take less than six months to complete. Net to Trillion, the work is expected to add 21 billion cubic feet of natural gas worth at least US$126 million netting out US$79.5 million after costs.
Concurrently, the Trillion recently completed an evaluation of its 100%-owned, 42,833-hectare Zagros Basin Derecik Exploration Licenses in the Hakkari area of Turkey. The license covers the extension of the oil-rich Iraq Zagros Basin into Turkey. The project is proximal to projects producing thousands of barrels oil per day with billions of barrels of oil reserves.
Trillion moving this project forward could prove quite prescient.
Why? Because according to the IEA, investment in oil and gas will sink a $244.1 billion in 2020, a 33% drop from 2019. This rapid decline, say some analysts, forecasting a spike in oil prices in the coming years, including Trevor Woods, CIO of hedge fund Northern Trace Capital, predicting $150/barrel by 2025 and Christyan Malek, JP Morgan’s head of oil and gas research for Europe, the Middle East, and Africa, believing $100/barrel oil is absolutely possible in the next two years.
Extensive exploration, including surface mapping, seismic interpretation, geological evaluation and analysis of oil seeps and bitumen from Derecik indicate the source rock that produces oil nearby in Iraq is the same on Trillion’s property in Turkey.
Seven leads have been identified, with two drill ready today.
“The two locations are expected to contain analogous reservoirs as found in the Shaikan Field located 90 kilometers south of the locations. Shaikan produced average 32,883 bopd (barrels of oil per day) in 2019 and have 2p (Proven and Probable reserves) of 578 million barrels of oil,” the company said in a statement Tuesday.
This is from Trillion with a US$6.5 million market capitalization. Lumped in with struggling energy plays, this is the epitome of the axiom that the baby has been thrown out with the bathwater. Luckily, the market always has a way of correcting itself.
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