Touchstone Exploration reports Strong Financial and Operating Growth in Q4 2023

Touchstone Exploration Inc (LON:TXP) has reported its operating and condensed financial results for the three months and year ended December 31, 2023. Selected financial information is outlined below and should be read in conjunction with our December 31, 2023 audited consolidated financial statements and related Management’s discussion and analysis, both of which will be available under our profile on SEDAR+ (www.sedarplus.ca) and on our website (www.touchstoneexploration.com). Unless otherwise stated, all financial amounts presented herein are rounded to thousands of United States dollars, and all production volumes disclosed herein are sales volumes based on Company working interest before royalty burdens.

Paul Baay, Touchstone Exploration President and Chief Executive Officer, commented:

“The transformational increase in production through the final months of 2023 reflects the commencement of production at our Cascadura field. The associated growth in cash from operations combined with our anticipated increase in borrowing capacity, will enable us to pursue our previously announced 2024 capital budget focused on driving further growth. Since year-end we have made substantial progress on our 2024 capital program, with one well successfully drilled and cased, and two further wells currently drilling. We continue to expect to bring the additional Cascadura wells on stream late in the third quarter of 2024 once the tie-in pipeline to our production facilities is completed. We are confident that 2024 will be another period of significant operational development and we look forward to updating our stakeholders on our progress.“

Fourth Quarter 2023 Financial and Operating Highlights

·     Average quarterly production increased 151 percent to 8,504 boe/d (79 percent natural gas) relative to 3,391 boe/d produced in the third quarter of 2023, reflecting a full quarter of Cascadura production volumes.

·      Realized petroleum and natural gas sales of $20,759,000 compared to $11,682,000 in the third quarter of 2023, mainly attributed to incremental Cascadura natural gas and associated liquids sales.

–     Cascadura field production volumes in the quarter contributed $8,437,000 of net natural gas sales at an average realized price of $2.45 per Mcf and $4,170,000 of net NGL sales at an average realized price of $72.92 per barrel.

–     Natural gas production from the Coho-1 well averaged net volumes of 3.1 MMcf/d (517 boe/d) in the quarter and contributed $617,000 of net natural gas sales at an average realized price of $2.16 per Mcf.

·     Generated an operating netback of $13,731,000, a 128 percent increase from the third quarter of 2023, benefiting from a full quarter of production from our Cascadura field. Operating netbacks were $17.54 per boe, representing a 9 percent decrease from the $19.27 per boe reported in the third quarter of 2023, attributed to an increased weighting of natural gas volumes to total production.

·     Achieved quarterly record funds flow from operations of $10,489,000 in the fourth quarter compared to $2,432,000 in the preceding quarter, primarily driven by the $7,720,000 quarter-over-quarter increase in operating netback.

·      $1,186,000 in quarterly capital investments primarily focused on expenditures directed to Royston-1X production testing, final Cascadura facility commissioning and pre-drill expenditures relating to the Cascadura-2 well.

·      Reduced net debt by 25 percent in the quarter, exiting the year with a cash balance of $8,186,000, a working capital deficit of $7,581,000 and a bank loan principal balance of $28,000,000, resulting in a net debt position of $22,581,000.

Annual 2023 Financial and Operating Highlights

·     Commissioned and achieved first natural gas and associated liquids production from our Cascadura facility on September 6, 2023.

·      Delivered average daily production volumes of 3,981 boe/d (65 percent natural gas), an increase of 152 percent year-over-year.

·      Realized petroleum and natural gas sales of $48,098,000 compared to $42,944,000 in the prior year, as $15,742,000 of incremental Cascadura natural gas and associated liquids sales were partially offset by a $12,598,000 decrease in crude oil sales, reflecting a 21 percent decline in realized crude oil pricing and a 12 percent reduction in crude oil production.

·     Generated funds flow from operations of $13,730,000 (2022 – $3,540,000) and an annual operating netback of $26,220,000 or $18.04 per boe (2022 – $19,281,000 and $33.42 per boe).

·      Executed an incident-free $18,949,000 capital program, primarily focused on completing the Cascadura natural gas facility and drilling and testing the Royston-1X exploration well.

·      December 31, 2023 net debt was $22,581,000, resulting in a reduced net debt to annual funds flow from operations ratio of 1.64 times.

·      Responsible operations remained a top priority throughout 2023, as Touchstone had one lost time injury and released its third environmental, social and governance report encompassing the 2022 year.

We recorded exploration and evaluation asset impairment expenses of $32,649,000 related to the Chinook and Royston areas of our Ortoire block, as the carrying value of the assets exceeded the estimated recoverable amount based on forecasted allocation of future capital spending and the previously announced results of production tests which deemed the Royston-1X sidetrack well uneconomic. The impairment expense was partially offset by an aggregate pre-tax net impairment reversal of $11,452,000 on three petroleum and natural gas development asset cash generating-units ($3,896,000 after-tax) and increased fourth quarter 2024 funds flow from operations. This resulted in a net loss of $21,236,000 ($0.09 per basic share) recognized in the fourth quarter of 2023 and $20,598,000 ($0.09 per basic share) reported in 2023. Excluding net impairment expenses recognized in each period, fourth quarter net earnings were $7,662,000 ($0.03 per basic and diluted share) and annual 2023 net earnings were $8,347,000 ($0.04 per basic and diluted share).

Post Year-End Highlights

·      We safely and successfully drilled and cased our Cascadura-2 delineation well on the Ortoire block.

·      Spudded the CO-374 well on the CO-1 block on February 28, 2024 and spudded the Cascadura-3 well on March 1, 2024, with drilling operations currently underway at both locations.

·      We executed a binding term sheet providing for $13 million of additional borrowing capacity from our existing Trinidad-based lender, with the parties currently documenting an amended loan agreement.

·      In February 2024, we achieved average net sales volumes of 7,081 boe/d as follows:

–     Cascadura contributed net sales volumes of 5,440 boe/d consisting of:

–     net natural gas sales volumes of 31.1 MMcf/d or 5,179 boe/d with a realized price of $2.49 per Mcf; and

–     net natural gas liquids volumes of 261 bbls/d with an average realized price of $69.85 per barrel;

–     Coho net average natural gas sales volumes were 2.8 MMcf/d or 469 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 1,172 bbls/d per day with an average realized price of $69.85 per barrel.

Outlook and Guidance

Touchstone Exploration’s first quarter 2024 capital program is progressing as planned with a primary focus on Cascadura field drilling, CO-1 infill well drilling and road and pipeline construction to tie-in our Cascadura development wells to our natural gas facility. The majority of the estimated production from our current capital activity is expected to be weighted to the fourth quarter of 2024. We currently forecast to maintain our preliminary 2024 guidance announced on December 19, 2024.

2023 Financial and Operating Results Overview

Notes:

(1)   Refer to the “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 the “Advisories – Oil and Natural Gas Measures” for further information.

(3)   Non-GAAP financial measure. See the “Advisories – Non-GAAP Financial Measures” for further information.

(4)   Percentages have been rounded to the nearest whole number and limited to increases or decreases of 100 percent.