Investors in Touchstone Exploration Inc (LON:TXP, CVE:TXP) are now set for a steady-stream of value-adding catalysts now that the 10-well 2018 drilling campaign is underway in Trinidad.
The oil company confirmed on Wednesday that drilling was now underway for the first well, which is due to reach target depth in 10 days and could be ready for production just 14 days after that.
Touchstone shares advanced 0.85p or 7.5% to trade at 12.10p.
A second drilling is set to join the campaign and start drilling the next well before the end of February.
Altogether the campaign aims to increase group production and unlock additional reserves. The schedule sees the completion of the 10 wells by August.
"The commencement of our ten well drilling program is further evidence of Touchstone transitioning its extensive reserves into production and cashflow,” said Paul Baay, Touchstone chief executive.
“It is extremely pleasing to be able to update the market, and our valued shareholders, with more positive news that we are delivering against our ambitious growth plans. If conditions allow, we hope to drill additional wells prior to year-end."
It starts with the PS-602 well
The first well, PS-602, is located in the Grand Ravine WD-4 Block. It was spudded on February 3 and is being drilled down to around 5,500 feet, targeting two zones (the upper and lower Forest formations). These are the main producing formations at Grand Ravine, and the well is positioned in what is seen as an ‘undrained’ portion of the property.
This first well of 10 will satisfy the minimum work requirement under the WD-4 lease agreements.
Accelerating the well campaign
A second rig is expected to join the campaign during February, and it will subsequently start drilling a well at the Forest Reserve WD-8 before the end of the month.
This rig is due to drill two wells at Forest Reserve, in separate locations.
Two wells will also be drilled at the Coora-2 property where surface operations are underway in multiple locations. Here, the company intends to follow up successes in 2014.
The two wells will satisfy the minimum work obligations for Coora-2.
Another two wells are planned for the Coora-1 property, from a single drilling location, following up two successful wells drilled last year.
The remaining three-well locations are presently being documented, though they are anticipated to be across the Fyzabad and WD-4 blocks.
It is scheduled that all the drilling will be complete before August.
December share sale means the work is covered
Touchstone expects the campaign will be fully-funded by its current cash balances and cash flows from operations.
It raised £3mln through the sale of shares to institutional investors in the United Kingdom.
The share placing priced the new equity at 11.5p per share, which means that following Wednesday’s drilling news, the new investors are now in the money.
With the cash proceeds in place, Touchstone was able to significantly expand its previous plan to drill four new wells.
At that time, Shore Capital analyst Craig Howie described Touchstone as “one of the most interesting” value plays in the small cap exploration and production sector.
“Given the very high rates of drilling success achieved in the year to date, and resultant incremental production additions, we are delighted to see this planned expansion of activities,” Howie added.
A blueprint for well success
Updates in November impressed Touchstone and its investors, and the results provided the impetus for the subsequent funding and the expansion to the drilling plans.
Touchstone, on November 28, told investors that the wells drilled during the 2017 programme had continued to beat expectations.
Overall, it had crude sales of 1,369 and 1,472 barrels per day for the months of September and October respectively, with production from the four 2017 wells contributing an average of 299 bopd in the two months.
Third quarter results, released November 14, revealed that Touchstone had generated some US$1.387mln of revenue in the three-month period, compared with US$438,000 for the preceding quarter.
The company also highlighted that the quarter’s realised operating netback of US$24.46 per barrel was up 25% from the previous quarter and 29% higher than the same period in 2016. Average oil sales amounted to 1,437 barrels per day, up 8% from the quarter before and 13% from the third quarter of 2016.