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Touchstone Exploration: THE INVESTMENT CASE

Touchstone Exploration to push ahead with Trinidad programme after early success

The two wells drilled recently at Coora 1 chipped in an average 202 barrels
picture of oil rig
INVESTMENT OVERVIEW: TXP The Big Picture
Oil rig in Trinidad

Touchstone Exploration Inc. (LON:TXP TSX:TXP) is to push ahead with its exploration plans in Trinidad now that the crude price has settled down a little.

At US$50 per barrel, we can certainly push forward with the programme, Paul Baay, chief executive, told Proactive.

The plan for 2018 is to drill between 10-20 wells, depending on prices, and to optimise production with workovers. Ideally there would be two of these a month, he said.

Touchstone will drill a further four wells in Trinidadthis year after a previous programme boosted production by more than predicted.

James Shipka, chief operating officer, said these wells targeted slightly deeper horizons in established fields and the results had exceeded expectations.

The Aim and Canada-listed group made total sales in July and August of 1,349 and 1,591 barrels per day respectively.

WATCH: Touchstone Exploration planning to drill a further four wells in Trinidad

The two wells drilled recently at Coora 1 chipped in an average 202 barrels for the 90 days they were in production with output from the field estimated currently at 246 bbls/d.  

At the Grand Ravine WD-4 block, the final two wells of the 2017 drilling program have been producing for 49 days at an average combined rate of 97 bbls/d. Current production from the two wells is about 139 bbls/d.

Total production over the two months was an average 1,470 bbls/d, which has risen to about 1,500 bbls/d currently. 

READ: Touchstone Exploration details ‘very positive’ second quarter

Baay added: “Achieving August crude oil sales of 1,591 bbls/d is a testament to our ability to deploy capital rapidly, to drive production and add further growth to our business. 

“We are currently assessing the potential to drill an additional four wells prior to the end of the year subject to acceptable commodity pricing and approval from our board."

Touchstone listed in London in June to try to increase liquidity in the shares and also because there are a number of other Trinidad-based companies listed here.

Underdeveloped

Canadian broker Mackie says Touchstone's production base was derived from several large oil-in-place legacy fields that were underdeveloped.

"The oil is characterized by stable low-decline, long-life production that requires minimal capital to maintain."

“Touchstone currently produces about 1,500 bbl/d of a medium to light grade crude oil from about 11 oil fields in Trinidad.

“Most of the fields are very large and have been producing for decades but have only recovered 2% to 13% of the original oil in place.

“Touchstone has booked a total of 78 development locations and 122 recompletion candidates providing years of low risk drilling and recompletion opportunities.

“A drilling and well recompletion program is underway which should boost production in H2/17.”

Speculative buy with a C$30c (18p) target price is Mackie’s view.

Shore Capital also keen

Touchstone is the ‘stand-out operator’ in Trinidad according to broker Shore Capital.

Since it joined AIM in June, operational news from Trinidad has been excellent with Touchstone having successfully drilled and brought on stream four new wells.

Production currently stands at circa 1,500 barrels per day and Touchstone appears well set to achieve an average of  1,450bopd said Shore, which has now raised its 2018 production forecast to 1,800bopd (from 1,700bopd).

The house also now expects an adjusted net profit of C$2m in 2018 (versus a loss estimated previously).

“With the shares trading at just 0.3x Risked NAV and at a deep discount on EV/production and EV/reserves measures, we believe that Touchstone has emerged as one of the most interesting relative value plays in our small cap E&P coverage universe.”

 

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