Trinidad and Tobago-focused Touchstone Exploration (LSE:TXP) sat at 16.4p on Tuesday after revealing strong production growth and progress in efforts to drill its potentially game-changing Ortoire asset. In its Q1 2019 results, the £28m business said it chose not to drill any wells in Trinidad over the period so it could focus on managing its working capital, cutting its debt, and preparing to drill its first exploration well at Ortoire.
Ortoire is a c.36,000 acre block where Touchstone currently owns an 80pc position. The land is based to the east of the company’s current producing blocks and contains four structurally complex oil and gas pools. It also sits on turbidites, which are deep deposits formed by massive gravity flows that can turn into vast hydrocarbon reserves.
Touchstone has identified three exploration prospects located on Ortoire’s Herrera sandstone reservoirs, which it expects to begin drilling imminently. The first and smallest target will be Corosan, a natural gas prospect located just north of Shell’s Carapal Ridge discovery, Trinidad’s largest onshore gas/condensate discovery in 50 years.
In Tuesday’s results, Touchstone said its near-term development plan is ‘strategically balanced’ between maintaining current, base production levels and proceeding with exploration at Ortoire. Specifically, the firm said it intends to drill its first Ortoire well using the net proceeds of a $4,496,000 placing carried out at 12p a share in February. It has now begun constructing the surface location for the well and expects to spud in late June, assuming rig availability.
Meanwhile, it added that its board has now approved a second well in the area, which it expects to drill immediately after the first well using the same rig. The organisation plans to fund the entire cost of both wells, covering its 20pc working interest partner Heritage Petroleum Company.
Tuesday also saw Touchstone reveal operational progress at its Trinidad operations beyond Ortoire. Indeed, the business announced quarterly average crude oil production of 2,121bbls/d – an increase of 37pc and 15pc on Q1 2018 and Q4 2018 respectively. It put this down to the full realisation of its 2018 drilling programme being enjoyed over the period – with this work contributing to c.692bbls/d of incremental production.
Despite this growth, Touchstone revealed that production in April 2019 – outside the reporting period – had dropped to 1,789bbls/d. The firm attributed this decline to downtime on two of its high rate flowing wells – one resulting from a tubing failure and another from a packer failure that resulted in water entering the wellbore. Regardless, with both wells undergoing repairs and 15 lower rate workovers awaiting service, Touchstone expects to return to a production rate of more than 2,000bbls/d within the next four to six weeks.
Finally, the company revealed healthy balance sheet progress over the beginning of 2019. On the top-line, it realised c.$11m in petroleum sales, an increase of more than a third on Q1 2018, as well as an operating netback of $29.35bbl – a rise of 11pc in spite of a slight decline in oil prices. Meanwhile, the firm delivered funds flow from operations of c.$2.4m compared to c.$2m in the first quarter of 2018.
However, it recognised a net loss of $185,000 for the period versus earning of $130,000 in the comparable period last year. Rather than this being an operational issue, Touchstone said the loss primarily arose from a c.$1.27m increase in supplemental petroleum tax expense.
Finally, the organisation exited the period with a healthy cash balance of c.$7.6m, a working capital surplus of c.$1.9m, and a C$15m principal term loan balance. Meanwhile, its net debt came in at $10.02m, a decrease of nearly a third on where it sat on 31 December 2018.
Touchstone’s president and chief executive Paul Baay will be holding a live online investor presentation and Q&A to discuss the results tomorrow, Wednesday 15th May, at 7:00 pm GMT. A recording will be available on ValueTheMarkets shortly after the presentation has taken place. For details on how to join, see https://bit.ly/2ViX2Yf.