What Touchstone does
The group has been producing oil in Trinidad since 2010 and is now one of the largest onshore independent oil producers in the country.
What it owns
Touchstone has production assets across 10 licence blocks in Trinidad, including 208 well locations over some 7,910 acres.
Across its portfolio, the company also has areas with exploration upside, through which it has earmarked potential growth projects.
Specifically, the Ortoire block covers a large area (about 55,000 acres).
Funded to accelerate exploration
On 20 February, Touchstone raised US$11.6mln (£9mln) through a share placing to institutional investors, with the new funds earmarked for the acceleration of exciting exploration activities in the Ortoire block.
It is issuing 22.5mln new shares priced at 40p each to institutional investors, with the placing arranged by Shore Capital as book runner.
"The results of the first two wells drilled at Ortoire have exceeded our expectations, and as a result the board has decided to complete the placing in order to accelerate exploration drilling on the property,” Paul Baay, Touchstone chief executive said in a statement.
“We are delighted by the support we have received from new and existing investors We continue to thank our shareholders for their ongoing support, and we look forward to continuing to update shareholders as the exploration program continues," he added.
How it’s doing
Touchstone, in early February, revealed successful test results from the Cascadura-1ST1 well.
The well encountered a total of 777 feet of pay in the Herrera formation, and, first stage testing covered the lower-most 162 feet.
Flow rates were measured at 5,180 barrels oil equivalent per day (boepd) over a fourteen-hour test period – comprising 26.9mln cubic feet and 694 barrels of natural gas liquids per day. The rate saw a peak of 5,736 boepd.
The findings confirm a significant liquids-rich natural gas discovery.
Cascadura is the latest impressive discovery in the Ortoire block.
In December, tests of the previously drilled Coho-1 well “greatly exceeded” expectations.
The absolute flow rate of the well, which is on the Ortoire exploration block, was 46mln cubic feet a day, or the equivalent of 7,671 barrels of oil. However, after modelling Coho-1, Touchstone expects the initial production rates to be in the order of 10-12mln standard cubic feet a day – 1,667-2,000 barrels of oil equivalent.
The gas itself was described as “pure, sweet [and] dry”, containing almost 99% methane and no hydrogen sulphide.
In mid-November, the company said it had achieved a higher-than-expected production rate from its Coho-1 well.
Output peaked at 19.8mln cubic feet (MMCFD) of sweet natural gas, the equivalent of 3,300 barrels of oil per day, and averaged 17.5MMCFD, or 2,917 of crude equivalent.
Providing a further boost, water production was significantly below what had been predicted ahead of testing.
Touchstone chief executive Paul Baay said the well test results represented a "new era" for the company with significant natural gas volumes set to be added to its production base.
The CEO also pointed out that the Coho-1 well was on the smallest prospect of the Ortoire exploration programme, which bodes well when it undertakes future discovery work.
For the three months ended 30 September, the company achieved crude sales of 1,729 barrels per day.
Meanwhile, the rate was marked at 1,871 barrels across the nine-month period, reflecting a 12% rise against the previous year’s comparative.
Touchstone generated US$1.08mln of funds from operations in the quarter, and US$4.8mln for the nine months. It also ended the quarter with a cash balance of US$3.42mln of cash and net debt of US$12.28mln.
Executive interview – CEO Paul Baay
What brokers say
Commenting on the share placing, SP Angel analyst Sam Wahab said: “A good outcome for Touchstone, highlighting renewed support for high impact appraisal activity in what has a been a largely subdued sector environment.
“Touchstone completed drilling its second Ortoire exploration prospect, Cascadura-1, in December 2019, and the first stage of production testing in February 2020 confirmed a substantial liquids-rich gas discovery.”
Previously, earlier in February, Shore Capital analyst Craig Howie, in a note, said: “an average flow rate of 27mmcfd of gas was achieved during the final extended test period, with almost 700bopd of associate liquids reported and the well exceeding expectations (ahead of testing of an upper zone covering 450ft of identified pay).”
“With these flow rates translating into a very substantial 5,180boepd in oil equivalent terms, and the upper zone at Cascadura providing additional potential beyond this.”
Results to date give house broker Shore Cap enough confidence for it to significantly upgrade forecasts production forecasts for 2021, which in turn lift the broker’s estimate of US$7.7mln profit next year.
“Our latest forecasts (and recently upgraded 48p/share Risked NAV estimate) are intended to provide a conservative baseline ahead of a further update on Cascadura testing next month,” Howie said.
“We therefore see an upside bias to further revisions, as more information emerges in the coming weeks, along with considerable remaining running room for Touchstone shares.” Howie added: “we already expect this liquids-rich gas discovery to provide a step-change for Touchstone’s production profile, beyond the success previously achieved with Coho-1.
“We are now forecasting average net daily production of 7,000boepd in FY2021, compared to the 1,825bopd that we estimate for FY2019. We also expect Ortoire gas to offer more favourable fiscal terms (compared to Touchstone’s established oil portfolio, which is subject to Supplementary Petroleum Tax).”
“We assume that Cascadura is brought online at the end of this year, driving an upgrade to our forecasts which now indicate revenues of US$84m, a US$7.7m net profit and US$14.7m of free cash flow in FY2021.”