Touchstone Exploration (LSE:TXP) released a solid operational update on Thursday stating current production is running at 2,358 barrels of oil per day (bopd). With the firm continuing to deliver steady production growth, and an exciting bout of exploration on the highly prospective Ortoire Block about to start, today’s 12p share price could offer a great opportunity to enter the stock.
The share price of Touchstone hit highs of 22.5p in the second half of last year, before the sharp pullback in the oil price dampened spirits across the sector. As with most of its peers the stock predictably fell hard. The company took the decision to temporarily pause further development of its producing wells until the oil price recovered, but the Brent oil price has enjoyed a decent bounce touching $68 per barrel this week. The general outlook for the sector appears reasonably positive with OPEC making it clear they will take action to bolster the price of oil as and when required. That is clearly positive for Touchstone, but arguably the forthcoming exploration of the Ortoire Block is a more exciting aspect to focus on.
The company has identified three targets located on Ortoire which it is looking to drill this year. The first target is Corosan, a natural gas prospect located just north of Shell’s Carapal Ridge discovery, which is scheduled to be drilled in June. Corosan could contain up to 50 billion cubic feet (Bcf) of gas which could effectively double the company’s current production. The second prospect is called Balata West, which Touchstone believes could support 30-40 wells producing 3,000-4,000bopd. However, the third prospect, called the Central Prospect, could well be the most prospective of all the Ortoire targets.
Touchstone raised £3.8m in a placing last month which it will use to launch the drilling campaign at Ortoire. The investment was made at the current price of 12p, which seems a decent line in the sand as Touchstone’s story enters its next phase.
The share price has been consolidating between 11.5p to 13.5p for much of this year with a current Market Cap of just £18m at 12p. the stock appears to have found a trend line of support (red), with a break above 14p likely to open up the opportunity of decent upside. 17p is then the next potential stumbling block which coincides with the bottom of the previous upward trend channel. If winds are fair, the stock could be knocking on the door of previous all-time highs, or beyond those in the event of drilling success at Ortoire. The Relative Strength Index (RSI) is also in a general uptrend.
With existing production providing a solid backbone, downside from these levels appears to be limited. As the start of the drilling campaign on the potentially transformational Ortoire block fast approaches, now may be the time to take a position.