Ticker Symbol: TXP-T
TOUCHSTONE EXPLORATION
FINANCIAL HIGHLIGHTS
TXP Q2/23 RESULTS & ANALYSIS
Touchstone is getting close to finally benefiting from its successful exploration program in Trinidad. It brought on its COHO-1 discovery during Q4/22 which added 4.2 Mmcf/d or over 670 boe/d of natural gas to their base heavy oil production of 1,124 b/d for total Q2/23 production of 1,827 boe/d (62% liquids). The big production takeoff should occur shortly when the significant Cascadura discovery starts production adding >9,000 boe/d of natural gas and condensate. Revenues in Q2/23 were US$7.2M down from US$12.6M in Q2/22 when commodity prices were higher. Capex was US$5.1M as they undertook the Royston testing and worked to complete the Cascadura natural gas facility. Under our SER Quality Scoring system, we rate TXP a ‘B’, a Survivor entity, as they have significant growth ahead. During 2024, TXP could be producing over 20,000 boe/d if the delays faced to date don’t reoccur and they bring on additional wells at Cascadura and at Royston. Then TXP will be generating cash flow in excess of capex needs. The company has made significant progress on the exploration and development front despite the frustrating delays.
Balance of Evidence
POSITIVES
- Insiders are material shareholders with Chairman, John Wright, owning 5.1M shares and CEO, Paul Baay, owning 2.0M shares.
- We forecast exit 2023 production at over 12,000 boe/d. Capex should be >US$20M. Annualized exit cash flow should be exceeding US$30M or C$0.17 per share. Our production profile Q3/23 exit volumes above 8,000 boe/d and in Q4/23 volumes of >10,000 boe/d as Cascadura volumes ramp up. TXP could sell their base heavy oil business once they have the significant volumes at Cascadura onstream.
- We should get test results from the Royston wells before the end of Q3/23.
ISSUES OF CONCERN
- Delays continue to be an issue. TXP believes that Cascadura will be on shortly as they await government approval to start up. There do not appear to be any technical issues on their side. With a shortage of natural gas on the island the government has an incentive to get these material new volumes on as quickly as possible.
- Investors have been frustrated by the lack of progress reports as the facilities were being built and the volumes starting up. This same frustration is occurring in Canada as the Coastal Gas pipeline for LNG Canada has dragged on and cost ballooned. Also, the TMX pipeline owned by the Federal government went way over the build estimates and the timing of start-up.
- Increased volumes at Cascadura to the capacity of 200 Mmcf/d (now at 90 MMcf/d) will require a better price deck for the spend required by TXP. Hopefully, this can be negotiated by TXP before the end of 2023.
Exploration Upside – Ortoire Block
Source: Touchstone Exploration Investor Presentation July 2023
Cascadura Development
Source: Touchstone Exploration Investor Presentation July 2023
Touchstone Exploration – Weekly
Source: stockcharts.com August 24, 2023
Touchstone Exploration – Monthly
Source: stockcharts.com August 24, 2023
Valuation Comparison
Source: Corporate Reports & SER Forecasts
Conclusion: BUY on weakness
- Touchstone stock retreated in 2021 after a fabulous run when it released news of its exploration successes during 2020. It fell to $0.96 per share in May 2023 and then we started to get announcements from management that activity was moving forward to bring on the two Cascadura wells that would add 9,200 boe/d and take total production to nearly 12,000 boe/d during Q3/23. Therefore, on June 8th we made TXP our first ‘Timely Investment Idea’ at a price of $1.01 per share. This new feature is based on near-term events that can make a significant difference to the companies chosen. TXP’s production increase potential met this requirement. The stock bounced to $1.53 per share two weeks ago. TXP has everything ready to bring the production on but requires government approval to do the start-up. We see this as happening in the coming weeks. Our one-year target remains $3.00 per share, and we have a current BUY range on the stock of $1.05- $1.20 per share. We profiled TXP during our recent quarterly webinar on Thursday August 17th. You can view this in our archives.