Touchstone Exploration Inc (LON:TXP) has reported its financial and operating results for the three months ended March 31, 2024 and provides an operational update.
Paul R. Baay, President and Chief Executive Officer, commented:
“We are pleased to announce positive first quarter 2024 results during what has been a very busy time for the Company. Since coming onstream in September 2023, the Cascadura field has transformed Touchstone both operationally and financially, having contributed an estimated $20 million in operating netbacks, ahead of tying in the two further successfully drilled development wells from the surface location. Initial decline rates on our two producing Cascadura wells have been steeper than we first expected but we are learning more about the reservoir for further exploitation. We are maintaining our full year guidance given production increases are heavily weighted towards the fourth quarter of 2024.
As announced on May 1, 2024, we were delighted to reach an agreement with the Board of Directors of Trinity Exploration and Production Plc on the terms of a recommended all-share acquisition. We believe the benefits of the proposed transaction will provide further scale and strength to Touchstone in addition to growth opportunities that will be driven by the increased production of the two companies. We are excited at the greater flexibility such a deal would give us around future capital programs, in addition to allowing us to potentially accelerate our development plans.
We look forward to updating shareholders on our ongoing operating and corporate workstreams in due course.“
First Quarter 2024 Financial and Operating Highlights
· Achieved average quarterly production of 7,015 boe/d (80 percent natural gas), representing a 228 percent increase from first quarter 2023 average production volumes of 2,139 boe/d (40 percent natural gas). First quarter 2024 production decreased by 18 percent relative to 8,504 boe/d produced in the fourth quarter of 2023 (79 percent natural gas), mainly reflecting natural declines from our Cascadura field.
· Realized petroleum and natural gas sales of $16,584,000 (Q4 2023 – $20,759,000).
– Cascadura field production volumes in the quarter contributed $6,961,000 of net natural gas sales at an average realized price of $2.49 per Mcf and $1,657,000 of net NGL sales at an average realized price of $69.59 per barrel.
– Natural gas production from the Coho-1 well averaged net volumes of 2.8 MMcf/d (460 boe/d) in the quarter and contributed $542,000 of net natural gas sales at an average realized price of $2.16 per Mcf.
– Crude oil production from our legacy fields contributed $7,424,000 of net sales at an average realized price of $69.95.
· Generated an operating netback of $10,463,000, a 24 percent decrease from the fourth quarter of 2023, primarily due to decreased natural gas and NGL sales volumes.
· Achieved quarterly funds flow from operations of $6,142,000 in the first quarter of 2024 compared to $10,489,000 in the preceding quarter.
· Delivered net earnings of $3,628,000 ($0.02 per basic and diluted share).
· $11,962,000 in quarterly capital investments primarily focused on expenditures directed towards one CO-1 crude oil development well and two Cascadura development wells, and progressing construction on the flowline from the Cascadura C surface location to the Cascadura natural gas processing facility.
· Exited the first quarter of 2024 with a cash balance of $9,537,000 and a net debt position of $27,621,000, resulting in a reduced net debt to annual funds flow from operations ratio of 1.45 times.
Post Period-end Highlights
· Successfully drilled and cased the CO-375 development on our CO-1 block, with openhole logs and drilling data indicating a sand thickness of approximately 530 feet in the Forest Formation and approximately 625 feet in the Cruse Formation.
· On April 18, 2024 we executed a third amended and restated loan agreement with our existing lender providing for an additional $13 million of bank debt capacity, which will be used to finance our previously announced initial 2024 capital program.
· On May 1, 2024, we announced that we reached an agreement with the Board of Directors of Trinity Exploration and Production Plc on the terms of a recommended all-share acquisition.
First Quarter 2024 Financial and Operating Results Overview
| Three months ended | |||
| March 31,2024 | December 31, 2023 | March 31,2023 | |
| Operational | |||
| Average daily production | |||
| Crude oil(1) (bbls/d) | 1,166 | 1,133 | 1,285 |
| NGLs(1) (bbls/d) | 262 | 622 | – |
| Crude oil and liquids(1) (bbls/d) | 1,428 | 1,755 | 1,285 |
| Natural gas(1) (Mcf/d) | 33,521 | 40,491 | 5,124 |
| Average daily production (boe/d)(2) | 7,015 | 8,504 | 2,139 |
| Average realized prices(3) | |||
| Crude oil(1) ($/bbl) | 69.95 | 72.26 | 64.86 |
| NGLs(1) ($/bbl) | 69.59 | 72.92 | – |
| Crude oil and liquids(1) ($/bbl) | 69.88 | 72.49 | 64.86 |
| Natural gas(1) ($/Mcf) | 2.46 | 2.43 | 2.12 |
| Realized commodity price ($/boe)(2) | 25.98 | 26.53 | 44.03 |
| Production mix (% of production) | |||
| Crude oil and liquids(1) | 20 | 21 | 60 |
| Natural gas(1) | 80 | 79 | 40 |
| Operating netback ($/boe)(2) | |||
| Realized commodity price(3) | 25.98 | 26.53 | 44.03 |
| Royalties(3) | (5.76) | (5.53) | (13.01) |
| Operating expenses(3) | (3.83) | (3.46) | (12.05) |
| Operating netback(3) | 16.39 | 17.54 | 18.97 |
| Financial ($000’s except per share amounts) | |||
| Petroleum and natural gas sales | 16,584 | 20,759 | 8,476 |
| Cash from operating activities | 5,369 | 8,512 | 913 |
| Funds flow from operations | 6,142 | 10,489 | 803 |
| Net earnings (loss) | 3,628 | (21,236) | (279) |
| Per share – basic and diluted | 0.02 | (0.09) | (0.00) |
| Exploration capital expenditures | 108 | 595 | 8,750 |
| Development capital expenditures | 11,854 | 591 | 269 |
| Capital expenditures(3) | 11,962 | 1,186 | 9,019 |
| Working capital deficit(3) | 14,121 | 7,581 | 4,383 |
| Principal long-term balance of bank debt | 13,500 | 15,000 | 19,500 |
| Net debt(3) – end of period | 27,621 | 22,581 | 23,883 |
| Share Information (000’s) | |||
| Weighted average shares outstanding – basic | 234,213 | 233,487 | 233,037 |
| Weighted average shares outstanding – diluted | 236,548 | 233,487 | 233,037 |
| Outstanding shares – end of period | 234,213 | 234,213 | 233,037 |
Notes:
(1) Refer to “Advisories – Product Type Disclosures” 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” for further information.
Outlook and Guidance
Our 2024 capital program is progressing as planned, with four of the six wells in the program successfully drilled and cased. Road and pipeline construction to tie-in our two recently drilled Cascadura development wells to our natural gas facility is progressing and we expect the infrastructure will complete prior to the end of the third quarter of 2024.
Although Cascadura field production has declined higher than originally anticipated, we currently forecast to maintain our preliminary 2024 guidance announced on December 19, 2023. The material forecasted 2024 production increase is expected to be weighted to the fourth quarter of 2024 based on estimated initial production from our two recently drilled Cascadura development wells. Management will update its 2024 guidance for the proposed acquisition of Trinity Exploration and Production Plc if and when appropriate.
Operational Update
Cascadura
The Cascadura field produced approximately 5,388 boe/d (95 percent natural gas) in the first quarter of 2024, representing 77 percent of our total quarterly net production. Since initial production in September 2023 through March 31, 2024, our Cascadura-1ST1 and Cascadura Deep-1 wells have cumulatively produced approximately 8.77 Bcf of gross natural gas volumes (net – 7.02 Bcf) and over 121,000 barrels of gross NGLs (net – 97,000 barrels) in 208 total days. Over the same period, the field has contributed a net operating netback of approximately $19.96 million.
During the first seven-months of production we have continually monitored and optimized natural gas rates from the two Cascadura wells. In the Cascadura-1ST1 well, we replaced the original choke valve with a larger valve. In the Cascadura Deep-1 well, we ran a production logging tool to indicate the source of gas within the wellbore and we added perforations above and below the original completion interval which marginally increased production. Both Cascadura-1ST1 and Cascadura Deep-1 continue to produce through surface chokes to control pressure.
Production in the first quarter of 2024 was impacted by natural declines as well as approximately six days of downtime in the Cascadura Deep-1 well associated with the operations noted above. Based on our analysis to date, including higher than expected initial decline rates as compared to pre-production models, the wells are exhibiting a dual porosity/permeability system which indicate that production is derived from both sand porosity/permeability as well as a fracture porosity system. A fracture porosity system can deliver high initial production rates and pressure which can decline quickly while sand matrix porosity/permeability may deliver at lower production rates for longer periods of time.
Given the nature of the production, and the apparent influences of natural fractures in the structure, we have commenced a feasibility study to determine the potential benefits of a stimulation program to optimize natural gas and associated liquids recovery from the wells.
CO-1 Drilling Operations
The CO-375 development well, located on our CO-1 block, was spud on April 3, 2024 and reached a total depth of 6,500 feet on April 30, 2024. The Forest Formation, which was the secondary target, was observed at a depth of 2,805 feet and the primary Cruse Formation target was encountered at a depth of 4,598 feet. Drilling samples and openhole wireline logs indicated the presence of sands in both formations. The Forest Formation indicated 530 feet of sand, with approximately 250 feet of net hydrocarbon pay. Similarly, the Cruse Formation indicated 625 feet of sand, with an estimated 240 feet of net hydrocarbon pay. The well has been cased in preparation for oil production and the drilling rig has been released.
The completion rig was mobilized to the surface location and completion operations are underway on the CO-374 well, following which the CO-375 well will be completed. We expect that both development wells will be online by the end of May 2024.
Production
In April 2024, we produced average net volumes of 5,940 boe/d as follows:
· Cascadura field contributed net sales volumes of 4,360 boe/d consisting of:
– natural gas sales volumes of 25.4 MMcf/d or 4,226 boe/d with a realized price of $2.51 per Mcf; and
– natural gas liquids volumes of 134 bbls/d with an average realized price of $76.12 per barrel;
· Coho net average natural gas sales volumes were 2.6 MMcf/d or 426 boe/d at a realized price of $2.28 per Mcf (excluding third party processing fees); and
· average net daily crude oil sales volumes were 1,154 bbls/d with an average realized price of $76.12 per barrel.
2024 Annual Meeting of Shareholders
Touchstone Explorationss virtual-only Annual Meeting of Shareholders will be held on Wednesday, June 19, 2024 at 10:30 a.m. (Mountain time).
Registered and beneficial shareholders will be mailed a notice-and-access notification and form of proxy on or around May 17, 2024, advising as to the electronic availability of the Meeting materials, including the 2024 Management Information Circular, the 2023 audited consolidated financial statements and related Management’s discussion and analysis.
For holders of our depositary interests, hard copies of our Management Information Circular and form of direction will be mailed on or about May 17, 2024.
Subsequent to the mailing date, the Meeting materials will be available on our website (www.touchstoneexploration.com/investors/shareholder-meetings) and under our profile on SEDAR+ (http://www.sedar.com/www.sedarplus.ca).
Management Update
As Touchstone Exploration continues to pursue its growth strategy and operations are becoming engineering intensive, Touchstone is pleased to announce that Mr. Brian Hollingshead has been promoted to Executive Vice President, Engineering and Business Development. In addition to joining our executive team, Mr. Hollingshead will oversee our production, engineering and facilities departments. In conjunction, Mr. James Shipka’s title has been amended from Chief Operating Officer to Executive Vice President, Asset Development and HSE, where he will continue to lead our HSE, drilling and subsurface teams.
