The share price of Touchstone Exploration (LSE:TXP) peaked at around 22.5p In October last year and subsequently declined sharply with the fall of the Brent spot price. With the stock appearing to have bottomed out in sync with oil, is now an opportune time to take advantage of further oil price recovery?
For much of 2018 Touchstone shareholders enjoyed an impressive share price rise due to the company’s production growth and an increase in the underlying oil price. Since the last quarterly update there are still a number of wells to be added to the production numbers and as we enter 2019, Touchstone turns its attention to an exciting new area in Trinidad, the Ortoire block.
Herrera sandstone reservoirs, on which Ortoire sits, are turbidite deposits – deep deposits formed by massive gravity flows that can turn into vast hydrocarbon reserves. The company expects to start drilling on the Ortoire block in the first half of 2019. The first target will be Corosan, a prospect located just north of Shell’s Carapal Ridge discovery, Trinidad’s largest onshore gas/condensate discovery in 50 years. President and CEO of Touchstone, Paul Baay is calling Corosan a ‘potentially world-class deposit’ and previously told ValuetheMarkets:
‘Corosan-1 tested about 8MMcf/d day at several different zones, but the operator didn’t drill it all the way to the base of the Herrera, so we plan to drill down to 7,000ft and investigate the full potential on offer. More practically speaking, the benefit of operating in the Corosan area is that we are only about 3km from Shell’s gas plant so we can tie in directly to the south of us. Essentially, the well will provide excellent proof of concept for the turbidite approach, the area is already proven to have hydrocarbons, we know it has some pay, and it is very close to market.’
With Brent oil back over $57 – nearly up 15% from its lows – and Touchstone’s share price comfortably finding support, the stock’s upside potential appears to outweigh potential downside. That is, of course, unless we see a further shock to the oil price or continued jitters in the wider stock market. At least regarding the former, OPEC and its allies are collectively cutting 1.2mmbpd of production starting this month.
Chart-wise, Touchstone bounced strongly off 10.5p, and current support can be found at 12p. Price action is currently testing the top of a short-term downward trend channel. A close of 13.5p would confirm a breakout and suggest a move to test resistance at 14.5p before an attempt to re-enter previous longer-term trend channels around 15-16p. The Relative Strength Index (RSI) is also threatening a move into the positive 50+ territory which would further signify a potential bullish move.
Longer-term targets include resistance around 17p, after which all-time highs will be back in the frame.