Touchstone Exploration Inc. (TSX, LON:TXP) has announced its annual 2024 capital budget, preliminary 2024 guidance and an operational update.
Paul Baay, President and Chief Executive Officer, commented:
“Our top priority remains maintaining a culture of safe and responsible operations that continues to drive near and long-term value creation for our investors. I am pleased to announce our growth-oriented capital budget for 2024 which reinforces Touchstone’s commitment to pursue development opportunities that generate positive returns to position the Company for sustained success. The budget and preliminary guidance reflects our near-term strategy to deploy capital to developmental drilling opportunities and use our existing natural gas and liquids infrastructure capacity. We will remain disciplined when deploying our 2024 capital and increasing our credit capacity, adhering to our long-term net debt and liquidity targets. This approach will allow us to fund future exploration drilling from cash flows expected to be generated through our 2024 development drilling program and maximization of our existing financing facilities.“
Funding Position(1)
The Company is in advanced discussions with its existing lender to increase its current debt capacity to facilitate the forecasted timing and amount of the 2024 capital budget presented herein. The 2024 budget contemplates increasing the Company’s revolving component of its credit facility from $7 million to $20 million in the first quarter of 2024. Although we are confident of reaching agreement, currently there is no firm commitment in place between the parties. Accordingly, the 2024 budget and preliminary guidance may be subject to change, and such changes may be material. The Company will provide further updates in due course.
2024 Budget Highlights([1])
· Capital budget allocation – we plan to invest approximately $33 million of capital in 2024, with approximately 42 percent of our capital expenditures([2]) directed to our Cascadura field and 38 percent to our Coho assets. The remaining 20 percent is allocated to our legacy oil properties, exploration licence payments and corporate infrastructure.
· Drilling operations – the initial 2024 capital budget contemplates drilling two Cascadura development wells, two CO-1 Block crude oil development wells, one Coho development well, and one Coho exploration well.
· Production growth – our 2024 mid-point annual average production guidance of 9,400 boe/d represents an approximate 135 percent increase from our forecasted 2023 average production, with a budgeted exit average production rate of 14,500 boe/d. Annual production guidance is 9,100 to 9,700 boe/d (approximately 82 percent natural gas weighted).
· Funds flow generation and balance sheet strength – the 2024 budget is designed to generate approximately $32 million of funds flow from operations(2) (Brent price of $75.00/bbl and an 18 percent realized Brent differential), resulting in a net debt to annual funds flow from operations ratio(2) of 0.78 times.
2024 Budget and Guidance Overview
For 2024, Touchstone’s Board of Directors has approved an initial capital budget of $33 million to drill, complete and tie-in six wells, resulting in estimated annualized average daily production between 9,100 boe/d and 9,700 boe/d with a forecasted production mix of 82 percent natural gas and 18 percent crude oil and liquids.
Touchstone’s initial 2024 drilling plan includes drilling two legacy property crude oil wells, two Cascadura development wells, one Coho development well and one Coho exploration well. Production growth is expected to be weighted in the fourth quarter of 2024, with two Cascadura wells expected to be drilled in the first half of the year and tied-in to the Cascadura plant prior to the end of the third quarter of 2024. The two Coho wells are expected to be drilled in the fourth quarter of 2024, and production additions from those wells are anticipated in the first quarter of 2025.
Using midpoint forecasted average production of 9,400 boe/d and a Brent Benchmark price of $75.00 for crude oil and liquids, Touchstone expects to generate approximately $32 million of funds flow from operations. Based on the approved capital budget of $33 million, Touchstone is forecasting to exit 2024 with a net debt of $25 million, resulting in a net debt to annual funds flow from operations ratio of 0.78 times.
2024 Guidance Summary(1)
| Annual Guidance | Year ending December 31, 2024 | |
| Capital expenditures(2) ($000’s) | 33,000 | |
| Average daily production(3) (boe/d) | 9,100 to 9,700 | |
| % natural gas(4) | 82% | |
| % crude oil and liquids(4) | 18% | |
| Average Brent crude oil price ($/bbl) | 75.00 | |
| % realized discount to Brent benchmark price | 18% | |
| Funds flow from operations(5) ($000’s) | 32,000 | |
| Net debt – end of year(2)(5) ($000’s) | 25,000 | |
Notes:
(1) Forward-looking statement representing Management estimates. Additional information regarding the assumptions used are provided in the “Advisories – Assumptions for 2024 Guidance” section herein.
(2) Non-GAAP financial measure. See the “Advisories – Non-GAAP Financial Measures” section herein for additional information on the definitions and calculation of these measures.
(3) In the table above and elsewhere in this announcement, references to “boe” mean barrels of oil equivalent that are calculated using the energy equivalent conversion method. See the “Advisories – Oil and Natural Gas Measures” section herein for further information.
(4) See the “Advisories – Product Type Disclosures” section herein for further information.
(5) The financial performance measures included in the Company’s 2024 preliminary guidance are based on the midpoint of the average production forecast.
Operational Update
In November 2023, we achieved average net sales volumes of 8,268 boe/d as follows:
· 6,623 boe/d (8,279 boe/d gross) of Cascadura field net sales volumes consisting of:
– net natural gas sales volumes of 36.1 MMcf/d or 6,022 boe/d (45.1 MMcf/d or 7,528 boe/d gross) with a realized price of $2.46/Mcf; and
– net natural gas liquids volumes of 601 bbls/d (751 bbls/d gross) with an average realized price of $71.46 per barrel;
· Coho field net average natural gas sales volumes of 3.2 MMcf/d or 527 boe/d (4.0 MMcf/d or 659 boe/d gross) at a realized price of $2.29/Mcf; and
· average gross and net daily crude oil sales volumes of 1,118 bbls/d with an average realized price of $71.46 per barrel.
Cascadura
Commissioning of the Cascadura natural gas facility has been completed, and the facility is fully functional. Since commencing production in September, the Cascadura facility has had an uptime of 97.9 percent with minimal interruptions experienced through the commissioning phase. Through November 30, 2023, the facility has processed 3.8 billion cubic feet of gross natural gas volumes and 73 Mbbls of gross NGL production volumes.
Touchstone continues to optimize Cascadura production volumes, with adjustments being made to the mechanical chokes which are constraining production in both wells. Through December 1 to December 17, 2023, Cascadura-1ST1 produced approximately 35.7 MMcf/d of gross field estimated natural gas volumes from the upper overthrust sheet while Cascadura Deep-1 contributed approximately 11.4 MMcf/d of gross field estimated natural gas production from the lower overthrust sheet.
We are evaluating the Cascadura Deep-1 well for future optimization, including the potential for additional perforations in the lower sheet. The additional perforations could increase production by reducing current reservoir draw down rates allowing for an increase in the surface choke, which is currently at 54 percent. These additional perforations can be achieved without the use of a service rig or having to kill the well. The Cascadura Deep-1 well has approximately 200 feet of perforations currently open (118 feet net pay), and wireline logs indicate an additional 149 feet of reservoir sands (109 feet net pay) in the lower part of the formation available for future completion. The well also has 366 feet of gross sand (274 feet net pay) in the upper overthrust sheet that can also be perforated in the future. Touchstone anticipates commencing a staged approach to adding these sands in the lower overthrust sheet in the first half of 2024.
Preparation works for drilling the Cascadura-2 development well using Star Valley Rig #205 are underway, with the intent to spud early in the first quarter of 2024 from the Cascadura-C surface location located approximately 5,000 feet northeast of our producing Cascadura wells. The Cascadura-2 well is targeting the same Herrera 7bc overthrust sand packages as the current Cascadura producing wells.
Coho
Touchstone completed a workover on the Coho-1 well on December 4, 2023, successfully isolating the lowermost perforations and shutting off approximately 77 percent of the produced water. Two weeks following the workover, field estimated gross production volumes have averaged approximately 4.6 MMcf/d of natural gas with approximately 54 barrels of water per day, compared to November gross production volumes of 4.0 MMcf/d of natural gas and 230 barrels of water per day. Based on the decreased water production, Touchstone expects fluid hauling expenses to decrease by approximately 80 percent.
Preparations are underway to facilitate the drilling of the Coho-2 development well and the Gibba-1 exploration well which are expected to be drilled on the existing Coho-1 surface location in the fourth quarter of 2024.
Royston
Production testing of the Royston-1X exploration well has been suspended, and no further testing or expenditures are planned. The uppermost Karamat and Herrera sands were put to pump, however the rates encountered were not economic. Touchstone will review the data collected during testing from both the Royston-1 and Royston-1X wells to determine if a declaration of commerciality for the Royston structure is warranted.
CO-1 Block
Preparations are underway on our CO-1 block for a two development well drilling program. A local drilling contractor is expected to mobilize a drilling rig to the location in late January, pending completion of their current drilling operations. Two wells are expected to be drilled from an existing surface location, both targeting Forest and Cruse sands which have proven to be highly prospective based on the Company’s previous drilling campaign offsetting the area.
Touchstone Exploration Inc.
Touchstone’s updated corporate presentation is available on our website at www.touchstoneexploration.com.
Touchstone Exploration Inc. is a Calgary, Alberta based company engaged in the business of acquiring interests in petroleum and natural gas rights and the exploration, development, production and sale of petroleum and natural gas. Touchstone is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company’s common shares are traded on the Toronto Stock Exchange and the AIM market of the London Stock Exchange under the symbol “TXP”.
