Touchstone Exploration Inc (LON:TXP) has reported financial and operating results for the three and six months ended June 30, 2024 and updated 2024 guidance.
Paul R. Baay, Touchstone Exploration President and Chief Executive Officer, commented:
“Our results for the first half of 2024 highlight Touchstone’s remarkable transformation over the past year, with notable improvements in both financial and production performance compared to the previous year. The second quarter has been particularly productive, marked by our efforts to optimize production, enhance processing capacity, and tie in our new wells to the Cascadura natural gas facility. We were excited to increase average sales volumes to 5,816 boe/d in July 2024, following the successful recompletion of the Cascadura Deep-1 well, representing an 18 percent increase from June 2024.
Since we began production at Cascadura in September 2023, we have gained valuable insights into the reservoir that will benefit our future drilling initiatives. However, we have observed that field declines have been steeper than anticipated, leading us to adjust our midpoint forecasted 2024 average production to 8,000 boe/d. Consequently, we now project an approximate annual funds flow from operations of $28 million for 2024.
Following our drilling program in the first half of the year, we remain on track to achieve initial production from the two Cascadura wells by the end of September. In line with our commitment to capital discipline and operational efficiency, we have decided to leverage the current drilling rig location and the installation of the Cascadura field flowline to drill two additional development wells from our Cascadura B site in the fourth quarter of 2024. This strategic shift will replace the previously planned two Coho wells. We look forward to sharing further updates with our shareholders in due course.“
Year to Date Second Quarter 2024 Financial and Operating Highlights
· Attained average production volumes of 6,223 boe/d (78 percent natural gas), representing a 214 percent increase relative to the 1,982 boe/d (39 percent natural gas) produced in the six months ended June 30, 2023, mainly attributed from Cascadura natural gas and associated liquids volumes that were brought online in September 2023.
· Achieved funds flow from operations of $10,110,000 versus $809,000 reported in the prior year comparative period, driven by an increase in operating netback of $12,112,000 primarily from increased production volumes and realized commodity pricing.
· Recognized net earnings of $6,967,000 ($0.03 per basic and diluted share) during the six months ended June 30, 2024 compared to a net loss of $350,000 ($0.00 per basic share) reported in the equivalent 2023 period.
Second Quarter 2024 Financial and Operating Highlights
· Achieved average quarterly production of 5,432 boe/d (77 percent natural gas), a 23 percent decrease relative to 7,015 boe/d produced in the first quarter of 2024 (80 percent natural gas), mainly reflecting natural declines from our Cascadura field.
· Realized petroleum and natural gas sales of $14,090,000 compared to $16,584,000 in the first quarter of 2024, primarily attributed to a decrease in natural gas and NGL sales volumes.
– Cascadura field production volumes in the quarter contributed $5,168,000 of natural gas sales at an average realized price of $2.52 per Mcf and $680,000 of petroleum sales at an average realized price of $73.86 per barrel.
– Natural gas production from the Coho-1 well contributed $483,000 of natural gas sales in the quarter at an average realized price of $2.16 per Mcf.
– Crude oil production contributed $7,759,000 of petroleum sales at an average realized price of $73.62 per barrel.
· Generated an operating netback of $8,127,000, a 22 percent decrease from the first quarter of 2024, primarily due to decreased natural gas and NGL sales volumes.
· Achieved quarterly funds flow from operations of $3,968,000 in the second quarter of 2024 compared to $6,142,000 in the preceding quarter.
· Delivered net earnings of $3,339,000 ($0.01 per basic and diluted share) versus $3,628,000 ($0.02 per basic and diluted share) recognized in the first quarter of 2024.
· $5,543,000 in quarterly capital investments primarily focused on expenditures directed towards one CO-1 well and progressing construction on the flowline from the Cascadura C site to the Cascadura natural gas processing facility.
· In April 2024 we entered into a third amended and restated loan agreement with our existing lender providing for an additional $13 million of bank debt capacity.
· Effective June 1, 2024 we closed an asset swap where we exchanged private San Francique leases for the Balata East block, which resulted in a $1,535,000 gain on asset disposition.
· Exited the second quarter of 2024 with a cash balance of $6,990,000 and a net debt position of $28,674,000, resulting in a net debt to annual funds flow from operations ratio of 1.25 times.
Post Period-end Highlights
· Effective July 1, 2024 we entered into exploration and production licences for the Charuma and Cipero onshore blocks awarded pursuant to the 2022 onshore competitive bid round, where we have an 80 percent operating interest in each licence.
· Following a recompletion of Cascadura Deep-1, in July 2024 we attained average net sales volumes of 5,816 boe/d representing an increase of 18 percent from June 2024 average net sales, comprised of:
– average natural gas sales volumes of 27.5 MMcf/d (4,578 boe/d); and
– average crude oil and natural gas liquid sales volumes of 1,238 bbls/d.
· Cascadura facility infrastructure and tie-in operations are progressing as scheduled, and we continue to target initial production from our Cascadura-2ST1 and Cascadura-3ST1 wells prior to the end of September 2024.
Financial and Operating Results Summary
| Three months ended June 30, | % change | Six months endedJune 30, | % change | |||
| 2024 | 2023 | 2024 | 2023 | |||
| Operational | ||||||
| Average daily production | ||||||
| Crude oil(1) (bbls/d) | 1,158 | 1,124 | 3 | 1,162 | 1,204 | (3) |
| NGLs(1) (bbls/d) | 101 | – | n/a | 181 | – | n/a |
| Crude oil and liquids(1) (bbls/d) | 1,259 | 1,124 | 12 | 1,343 | 1,204 | 12 |
| Natural gas(1) (Mcf/d) | 25,036 | 4,215 | 100 | 29,279 | 4,667 | 100 |
| Average daily production (boe/d)(2) | 5,432 | 1,827 | 100 | 6,223 | 1,982 | 100 |
| Average realized prices(3) | ||||||
| Crude oil(1) ($/bbl) | 73.62 | 62.26 | 18 | 71.78 | 63.64 | 13 |
| NGLs(1) ($/bbl) | 73.86 | – | n/a | 70.78 | – | n/a |
| Crude oil and liquids(1) ($/bbl) | 73.64 | 62.26 | 18 | 71.64 | 63.64 | 13 |
| Natural gas(1) ($/Mcf) | 2.48 | 2.11 | 18 | 2.47 | 2.12 | 17 |
| Realized commodity price ($/boe)(2) | 28.50 | 43.19 | (34) | 27.08 | 43.64 | (38) |
| Production mix (% of production) | ||||||
| Crude oil and liquids(1) | 23 | 62 | 22 | 61 | ||
| Natural gas(1) | 77 | 38 | 78 | 39 | ||
| Operating netback ($/boe)(2) | ||||||
| Realized commodity price(3) | 28.50 | 43.19 | (34) | 27.08 | 43.64 | (38) |
| Royalties(3) | (7.25) | (12.94) | (44) | (6.41) | (12.98) | (51) |
| Operating expenses(3) | (4.81) | (13.25) | (64) | (4.26) | (12.61) | (66) |
| Operating netback(3) | 16.44 | 17.00 | (3) | 16.41 | 18.05 | (9) |
| Financial | ||||||
| ($000’s except per share amounts) | ||||||
| Petroleum and natural gas sales | 14,090 | 7,181 | 96 | 30,674 | 15,657 | 96 |
| Cash from operating activities | 3,383 | 2,975 | 14 | 8,752 | 3,888 | 100 |
| Funds flow from operations | 3,968 | 6 | 100 | 10,110 | 809 | 100 |
| Net earnings (loss) | 3,339 | (71) | n/a | 6,967 | (350) | n/a |
| Per share – basic and diluted | 0.01 | (0.00) | n/a | 0.03 | (0.00) | n/a |
| Exploration capital expenditures | 60 | 4,795 | (99) | 168 | 13,545 | (99) |
| Development capital expenditures | 5,483 | 340 | 100 | 17,337 | 609 | 100 |
| Capital expenditures(3) | 5,543 | 5,135 | 8 | 17,505 | 14,154 | 24 |
| Working capital deficit(3) | 2,674 | 10,913 | (75) | |||
| Principal long-term bank debt | 26,000 | 18,000 | 44 | |||
| Net debt(3) – end of period | 28,674 | 28,913 | (1) | |||
| Share Information (000’s) | ||||||
| Weighted avg. shares outstanding: | ||||||
| Basic | 234,959 | 233,144 | 1 | 234,586 | 233,091 | 1 |
| Diluted | 236,364 | 233,144 | 1 | 236,451 | 233,091 | 1 |
| Outstanding shares – end of period | 236,307 | 233,428 | 1 | |||
Notes:
(1) Refer to the “Advisories – Product Type Disclosures” section herein for further information.
(2) 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. Refer to “Advisories – Oil and Natural Gas Measures” for further information.
(3) Non-GAAP financial measure. See the “Advisories – Non-GAAP Financial Measures” section herein for further information.
Outlook and Guidance
Touchstone Exploration continue to focus on financial discipline and value creation from our portfolio of development and exploration assets. Our principal near term strategy is to increase cash flow generation via the development of our Cascadura field in 2024. On December 19, 2023, the Company issued a news release to announce the approval of our preliminary financial and operating guidance for 2024. This guidance is summarized below along with updated 2024 guidance which reflects a 15 percent reduction in the midpoint of our production forecast driven by year-to-date production levels.
The first half of our 2024 capital program has progressed as planned, with four wells in the program successfully drilled and cased, including two Cascadura development wells and two legacy property crude oil wells. Road and pipeline construction to tie-in the two Cascadura development wells to our natural gas facility is progressing and we continue to expect initial production from the two wells prior to the end of September 2024.
Our original capital guidance in the fourth quarter of 2024 contemplated drilling one Coho development well and one Coho exploration well. In order to focus on the development of our Cascadura field, we have elected to postpone our Coho capital program and drill two additional Cascadura development wells from the Cascadura B site. We expect to commence Cascadura drilling operations during the fourth quarter of 2024 after site preparations are complete and the drilling rig has been mobilized from our Cascadura C site. As such, our 2024 capital budget has been revised from $33 million to $35 million to accommodate increased estimated Cascadura facility tie-in expenditures and the construction of the Cascadura B drilling pad. Similar to our original Coho well production guidance, associated production from the two additional Cascadura development wells is expected to commence in the first quarter of 2025 pending successful drilling, completion and tie-in operations.
Our year-to-date 2024 Cascadura field production has experienced higher declines than anticipated in our preliminary 2024 guidance. Accordingly, we have revised our midpoint forecasted 2024 average production from 9,400 boe/d to 8,000 boe/d, in addition to revising our 2024 exit production rate from 14,500 boe/d to 13,500 boe/d. The material forecasted 2024 production increase continues to be weighted to the fourth quarter of 2024 based on anticipated initial production from our two recently drilled Cascadura development wells, which have been forecasted based on the actual Cascadura-1ST1 type curve.
Based on forecasted average mid-point production of 8,000 boe/d and updates to both our 2024 average Brent crude oil price and percent realized discount to Brent benchmark pricing, we now expect to generate approximately $28 million in funds flow from operations compared to our previous forecast of $32 million. Our annual funds flow from operations includes an estimated $1.5 million in transaction costs from the proposed acquisition of Trinity Exploration and Production Plc, which were not incorporated into our previous guidance. In combination with the revision to our 2024 capital program, we have revised our year-end 2024 net debt guidance to $28 million, representing a 12 percent increase from previous guidance.
2024 Updated Guidance Summary
| Annual Guidance Summary(1) | Updated Guidance | Previous Guidance(2) | Variance | |
| Amount | % | |||
| Capital expenditures(3) ($000’s) | 35,000 | 33,000 | 2,000 | 6 |
| Average daily production (boe/d) | 7,700 to 8,300 | 9,100 to 9,700 | ||
| % natural gas | 82% | 82% | ||
| % crude oil and liquids | 18% | 18% | ||
| Average Brent crude oil price ($/bbl) | 82.00 | 75.00 | 7.00 | 9 |
| % realized discount to Brent price | 16% | 18% | (2) | (11) |
| Funds flow from operations(4) ($000’s) | 28,000 | 32,000 | (4,000) | (13) |
| Net debt – end of year(3)(4) ($000’s) | 28,000 | 25,000 | 3,000 | 12 |
Notes:
(1) Forward-looking statement representing Management estimates. Additional information regarding the assumptions used are provided in the “Advisories – Assumptions for Updated 2024 Guidance” section herein.
(2) As announced on December 19, 2023.
(3) Non-GAAP financial measure. See the “Advisories – Non-GAAP Financial Measures” section herein for further information.
(4) The financial performance measures provided in the Company’s updated 2024 guidance are based on the midpoint of the average production forecast, being 8,000 boe/d (formerly (9,400 boe/d).
