Touchstone Exploration Inc. (TSX, LON:TXP) reported today its operating and financial results for the three and nine months ended September 30, 2021. Selected information is outlined below and should be read in conjunction with Touchstone’s September 30, 2021 unaudited interim condensed consolidated financial statements and related Management’s discussion and analysis, both of which will be available under the Company’s profile on SEDAR (www.sedar.com) and the Company’s website (www.touchstoneexploration.com). Unless otherwise stated, all financial amounts herein are stated in United States dollars.
Third Quarter Operational and Financial Highlights
· Achieved quarterly average production volumes of 1,333 bbls/d, a 2 percent increase relative to the 1,310 bbls/d produced in the third quarter of 2020.
· Despite continuing COVID-19 challenges in Trinidad, executed an incident free $7,542,000 exploration program, highlighted by the drilling of the Royston-1 exploration well and completion of the Royston area seismic program.
· Realized petroleum sales of $7,650,000 from an average crude oil price of $62.37 per barrel.
· Generated an operating netback of $27.77 per barrel, our highest quarterly operating netback since the first quarter of 2019 and a 97 percent increase relative to the third quarter of 2020.
· Reported funds flow from operations of $1,073,000 versus $192,000 in the third quarter of 2020.
· Recognized a reduced net loss of $51,000 compared to a net loss of $703,000 in the same period of 2020.
· Exited the third quarter with a cash balance of $5,004,000 and $7,500,000 drawn on our term credit facility.
· Successfully aided in exporting a third-party drilling rig to Trinidad, with developmental drilling operations commencing on our WD-4 block on early October 2021.
· Exploration operations proceeded in the third quarter, with Coho natural gas facility and pipeline construction operations continuing towards targeted pipeline commissioning in the first quarter of 2022, as well as the completion of the design of the Cascadura natural gas facility.
Paul Baay, Touchstone Energy President and Chief Executive Officer, commented:
“Our third quarter results reflect the focused work the team has done on maintaining base production with minimal expense while executing a safe capital program at Ortoire. The higher reported operating netbacks have resulted in strong cash flow for the quarter which help fund our ongoing capital program while we move closer to first production from Coho, which is forecasted to effect a step change in our financial performance.”
Financial and Operating Results Summary
| Three months ended September 30, | % change | Nine months ended September 30, | % change | |||
| 2021 | 2020 | 2021 | 2020 | |||
| Operational | ||||||
| Average daily oil production(1) (bbls/d) | 1,333 | 1,310 | 2 | 1,344 | 1,431 | -6 |
| Net wells drilled | 0.8 | – | n/a | 0.8 | – | n/a |
| Brent benchmark price ($/bbl) | 73.51 | 42.91 | 71 | 67.89 | 41.15 | 65 |
| Operating netback(2) ($/bbl) | ||||||
| Realized sales price | 62.37 | 39.2 | 59 | 58.06 | 38.54 | 51 |
| Royalties | -19.36 | -11.17 | 73 | -17.75 | -10.82 | 64 |
| Operating expenses | -15.24 | -13.94 | 9 | -14.9 | -13.06 | 14 |
| Operating netback | 27.77 | 14.09 | 97 | 25.41 | 14.66 | 73 |
| Financial | ||||||
| ($000’s except per share amounts) | ||||||
| Petroleum sales | 7,650 | 4,725 | 62 | 21,356 | 15,178 | 41 |
| Cash from operating activities | 384 | 4,126 | -91 | 158 | 2,129 | -93 |
| Funds flow from operations(3) | 1,073 | 192 | 459 | 2,816 | 999 | 182 |
| Per share – basic and diluted(2)(3) | 0.01 | 0 | n/a | 0.01 | 0.01 | – |
| Net loss | -51 | -703 | -93 | -795 | -12,685 | -94 |
| Per share – basic and diluted | 0 | 0 | – | 0 | -0.07 | -100 |
| Exploration capital expenditures | 7,542 | 5,758 | 31 | 17,160 | 8,830 | 94 |
| Development capital expenditures | 2,315 | 211 | 997 | 2,567 | 523 | 391 |
| Total capital expenditures | 9,857 | 5,969 | 65 | 19,727 | 9,353 | 111 |
| Working capital deficit (surplus)(2) | 4,657 | -869 | n/a | |||
| Principal long-term balance of term loan | 7,125 | 15,000 | -53 | |||
| Net debt(2) – end of period | 11,782 | 14,131 | -17 | |||
| Share Information (000’s) | ||||||
| Weighted avg. shares outstanding: | ||||||
| Basic and diluted | 210,732 | 184,277 | 14 | 209,968 | 179,112 | 17 |
| Outstanding shares – end of period | 210,732 | 184,408 | 14 | |||
Notes:
(1) References to crude oil in the above table and elsewhere in this announcement is a mix of light and medium crude oil and heavy crude oil for which there is not a precise breakdown since the Company’s oil sales volumes typically represent blends of more than one type of crude oil.
(2) Non-GAAP financial measure that does not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS” or “GAAP”) and therefore may not be comparable with the calculation of similar measures presented by other companies. See “Advisories: Non-GAAP Measures” for further information.
(3) Additional GAAP term included in the Company’s consolidated statements of cash flows. Funds flow from operations represents net loss excluding non-cash items. See “Advisories: Non-GAAP Measures” for further information.
Operating results
Our third quarter 2021 crude oil sales averaged 1,333 bbls/d, representing a 2 percent increase from the third quarter of 2020. The nominal increase in production was reflective of increased legacy well workover operations through 2021 that have mitigated annual natural declines. We incurred $2,315,000 in development asset expenditures in the third quarter of 2021, primarily relating to third-party drilling rig mobilization fees and inventory for the Company’s fourth quarter 2021 development drilling program.
Touchstone’s focus in the third quarter of 2021 remained on Ortoire exploration operations, investing $7,542,000 and progressing with the following exploration activities.
· Completed the Royston area 22-kilometre seismic program, which gave the Company further clarity regarding the Royston, Steelhead, Bass and Kraken exploration prospects.
· Drilled the Royston-1 exploration well, with wireline log data indicating an aggregate 393 gross feet of potential hydrocarbon pay.
· Continued Coho-1 natural gas facility construction operations, with pipeline installation operations commencing in late October 2021.
· Completed the design of the Cascadura natural gas facility, with facility separators currently being fabricated and facility equipment being sourced for procurement.
Financial results
We generated funds flow from operations of $1,073,000 in the third quarter of 2021 compared to $192,000 in the same period of 2020. In comparison to the third quarter of 2020, the increase primarily reflected a 59 percent increase in crude oil realized pricing, which contributed to a $1,707,000 increase in third quarter 2021 operating netbacks. Relative to the third quarter of 2020, further savings in third quarter 2021 term loan interest costs were offset by increased general and administration costs and income tax expenses accrued from increased taxable income.
Touchstone recorded a net loss of $51,000 ($0.00 per share) in the third quarter of 2021 compared to a net loss of $703,000 ($0.00 per share) in the prior year equivalent quarter. The decreased 2021 net loss compared to the equivalent prior year period was primarily attributed to the aforementioned increase in operating netbacks, which were driven by stable production and increased realized pricing.
Based on increased capital spending, we exited the third quarter with a cash balance of $5,004,000, a working capital deficit of $4,657,000 and $7,500,000 drawn on its term credit facility resulting in a net debt position of $11,782,000. On October 1, 2021, we withdrew an additional $7,500,000 on our term credit facility, resulting in a principal balance of $15,000,000 currently outstanding. Our near-term liquidity is augmented by $5,000,000 of current undrawn credit capacity, which may be accessed any time prior to the end of the 2021.
Our primary objective remains to bring the Coho and Cascadura area natural gas exploration discoveries at Ortoire onto production as soon as practicable. As the current economic and health-related challenges persist, we will continue to adapt business operations and capital programs to ensure health and safety and enhance long-term shareholder value.
Operational Update
Development drilling
Drilling with the newly imported Star Valley Rig 205 commenced on our WD-4 block on October 6, 2021 with the PS-610 well, reaching a depth of 7,589 feet on October 19, 2021. While drilling in the lowermost section of the well, a high-pressure natural gas zone was encountered which required an increased mud weight that resulted in a stuck pipe event. After multiple recovery attempts, we abandoned the wellbore and sidetracked uphole. PS-610ST commenced drilling on October 31, 2021 and reached a total depth of 6,975 feet on November 9, 2021. Wireline logs indicate that the well encountered a total of 807 feet of sand and 370 feet of net oil pay at depths between 3,900 and 6,900 feet as follows:
Upper Forest Formation 108 feet
Lower Forest Formation 236 feet
Upper Cruse Formation 26 feet
Total 370 feet
The well also encountered 353 feet of gross sand in the shallow Morne L’Enfer Formation of which 349 feet is prospective oil pay. The Morne L’Enfer Formation is productive in many parts of Trinidad; however, economic production has not been established in the Grand Ravine WD-4 area. While PS-610ST will not be testing these sands, these results represent a future opportunity which will be further investigated by our subsurface team.
The PS-610ST well is currently being cased for oil production, and the drilling rig will be mobilizing to our WD-8 block where it is expected to drill two development wells off a single pad. Once the rig is off the PS-610ST location we will proceed with its planned initial completion in the Upper Cruse Formation. Based on offset well and wireline log data, we expect initial production rates to be in line with internal forecasts.
Coho
The final construction stages of the Coho facility are progressing, and the 3-kilometre pipeline field construction to the Central Block Baraka natural gas facility has commenced with pipeline commissioning expected in the first quarter of 2022.
Cascadura
We have completed the design of the surface facilities required to meet the initial and long-term production capabilities of the Cascadura-1ST1 and Cascadura Deep-1 exploration wells that have been successfully tested. Currently the facility separators are being fabricated, with other facility equipment being sourced for procurement.
We continue to work in conjunction with a third-party contractor on the Cascadura area Environmental Impact Assessment (“EIA”) to submit to the Trinidad and Tobago Environmental Management Authority (“EMA”). The first phase of stakeholder engagement was completed in September 2021, with the final phase expected to be completed by the end of November 2021. The expected date of completion of the EIA and submission to the EMA is anticipated to occur by the end of 2021. The EMA has 80 business days to review the submitted EIA upon receipt.
Chinook
Subsequent to the fourth and final production test performed on the Chinook-1 well, the well was shut in on July 15, 2021 for a 30-day pressure buildup, and downhole pressure recorders were retrieved on August 16, 2021. Analysis of the pressure buildup data at this location suggests the Cruse reservoir is undamaged, small in size, and uneconomic to produce. Touchstone has submitted a notification of commercial potential for the Chinook area to the Trinidad and Tobago Ministry of Energy and Energy Industries and is currently working on declaration of commerciality and comprehensive field development submissions.
Royston
As previously reported, the Royston-1 well was spud on August 12, 2021 and was the final exploration commitment well under our Ortoire licence. Drilling samples and open hole wireline logs indicated that the well encountered a significant Herrera turbidite package with a total observed thickness of more than 1,000 feet. The overall Herrera section drilled in Royston-1 contained approximately 609 feet of clean sand, of which 393 gross feet in two unique thrust sheets appeared to be hydrocarbon pay based on mud gas logging and open hole logs.
Initial completion and production testing operations commenced on October 20, 2021. The first of three scheduled production tests was completed between 10,434 and 10,526 feet and, as previously announced, proved the Intermediate Herrera section to be a 34.5-degree API crude oil reservoir which flowed at rates up to 360 bbls/d during testing. Based on wireline logging and drilling data, we are configuring the next two uphole primary production test intervals to evaluate probable liquids rich natural gas prospects, with flowback and full buildup analysis planned for each zone. The second test is expected to be completed within the next three weeks, and we anticipate the third test to be completed by the end of December 2021.
Touchstone Exploration Inc.
