In the oil and gas exploration game on AIM local news outlets around the world can prove to be invaluable assets in gaining crucial investing edges. If you don’t already make extensive use of Google News Alerts you really should. It’s an incredibly powerful tool, not to mention also being free. This evening I’ve come across an article from the Trinidad Express, which is potentially highly exciting for holders in Touchstone Exploration (LSE:TXP).
Written by Kevin Ramnarine, a former Minister of Energy and Energy Affairs, the article describes, “why natural gas exploration matters” to Trinidad and Tobago. This is a useful overview to anyone interested in Touchstone, with the company set to embark on a three well exploration campaign across its onshore Ortoire Block in that country. Two of the three wells, COHO-1 and the deeper ROYSTON-1, are targeting gas prospects, so the general relevance of the piece is obvious.
However, one paragraph in the article really stands out.
“Arising out of contracts signed for the 2014 land-based bid round, locally owned and operated company Lease Operators Ltd (LOL) has been conducting exploration drilling in the Rio Claro area in recent months. The understanding is the results for one exploration well are positive. This augurs well for land-based oil production and if successful will lead to an uptick in development drilling in the south east part of Trinidad. From the same group of 2014 contracts, there will soon be exploration drilling in the Ortoire area by Touchstone. Should LOL and Touchstone be successful in South East Trinidad, and I have every reason to believe they will be, they could add new oil production to the country’s declining output.”
I’ve emboldened the key points.
By way of background, the Rio Claro Block is directly to the north of Touchstone’s Ortoire Block. The map below is from the original 2013 bidding round and shows the blocks’ relative positions.
Rio Claro is operated by Lease Operators Limited, a privately owned oil and gas company. Such companies are not subject to the same regulatory reporting requirements as listed ones. They tend to release bare minimum information, as mandated by local authorities. Mindful of commercial sensitivities and the importance of creating “business friendly” environments, these authorities rarely require public announcements of oil and gas discoveries. Instead they usually focus on the reporting of oil and gas production.
As such, it is not often that retail investors will get to hear about a new oil or gas discovery made by a private firm until that discovery has been brought into commercial production. By that point the information isn’t generally any use if seeking any sort of investing edge.
This is what makes the Trinidad Express’ piece so attention-grabbing.
Followers of Touchstone will know that the company has been waiting for its turn to use the rig on Trinidad capable of drilling the COHO-1 gas prospect. The firm will then use the same rig to drill its CASCADURA-1 oil prospect at Ortoire. Both COHO-1 and CASCADURA-1 are targeting similar depths.
In a recent interview with ValueTheMarkets.com, Touchstone CEO Paul Baay told us,
“The rig (for drilling COHO-1) is with another operator just 5 miles to the north. The well that that operator is drilling is down to a depth of 9, 700, which is good news for us. That is about 1,500ft deeper than our first target, so will mean the rig will be warmed up mechanically for us when we take it over.
Now, thanks to the Trinidad Express’ article, it looks like Lease Operator’s exploration well (which surely must be the one “5 miles to the north) has been a success. Given its close proximity to COHO-1 and the fact that there was a “wealth of well and seismic data” available in the original 2013 bidding round for both the Rio Claro and Ortoire blocks, Ramnarine’s comment that he “has every reason to believe [Touchstone] will be successful South East Trinidad” looks like it has weight behind it.
Considering that in May’s presentation (Slide 12 here) Touchstone’s Risked Best Estimate NPV10 for Coho-1 was C$26.6m (£16.7m) with a 73pc chance of success, the short-term upside for the company couldn’t be better signposted. At 16p the firm is valued at £26m.
Make of that what you will.