Touchstone Exploration Share Discussion Threads

[jamesiebabie] 11/8/2014 22:02

I agree the volume is looking better, along with the chart indicators; it would appear that it MAYH BE on the the verge of a breakout, we just need continued good volume.

[dosser2] 11/8/2014 21:44

Moving up at last

[blik] 11/8/2014 16:29

JB, I am almost fully loaded here. Hope the results are excellent.

Volume on TSX and OTC is picking up, and L2 is jumping around

[jamesiebabie] 09/8/2014 17:39

Q2 results on Thursday should be good.

[jamesiebabie] 01/8/2014 11:32

Link to the IC Video is now in the header.

[jamesiebabie] 01/8/2014 09:39

A reminder of the latest news from TXP.

[stateside] 01/8/2014 09:28

You beat me to it.

[jamesiebabie] 01/8/2014 09:25

One to watch.

[jamesiebabie] 01/8/2014 09:17

Trinidadian oil exploration hots up

This time last year, we predicted Trinidad & Tobago would soon become an exciting exploration destination for Aim-traded oil and gas companies in our sector focus piece, 'Could Trinidad be the new North Sea?'. And almost right on cue, exploration activity across Trinidad has rapidly accelerated while interest from speculative investors is exploding.

Aim junior Leni Gas & Oil (LGO) has seen its share price rise four-fold this year on the back of successful drilling at its mature Goudron field onshore Trinidad. Shares in rival onshore operator Range Resources (RRL), meanwhile, have doubled in value since May, as have shares in Toronto Stock Exchange-listed Touchstone Exploration (TSX: TXP). This is despite the wider Aim oil and gas sector retreating a miserable 20 per cent over the past six months.

The excitement in Trinidad mainly stems from long-awaited changes to the country's onerous tax regime that were finally passed into law in June. These include cost recovery measures as well as exploration and development tax breaks designed to reward companies seeking to increase onshore oil production. Reductions in royalty rates have also been successfully negotiated on a case-by-case basis. At the same time, there has been early progress toward redeveloping major onshore oil fields previously operated by the likes of Texaco and state-owned Petrotrin. Onshore fields have largely been left alone for the past 40 years but rising oil prices, technological advances and the proposed changes to Trinidad's tax regime have caused oil executives to look at them with fresh eyes.


Sunshine and pumpjacks

We looked at the backdrop to oil and gas production in Trinidad & Tobago in detail last time around, but for newcomers the broker's view section at the end of this article provides some useful background information. The key issue facing Trinidad is that, just like in the UK North Sea, oil and gas production has dramatically declined over the past decade as new discoveries have failed to keep pace with depleting reserves. While it will undoubtedly take time for the new stimulus measures to take full effect, they have already spurred several Aim-traded oil juniors to ramp up drilling. As a result, hydrocarbon production on the islands should quickly increase. Below, we examine the operations of each of the four current operators in turn.

Junior oil and gas companies operating in Trinidad
Company name Exchange Share price Market capitalisation Current oil & gas production in Trinidad (boepd)
Leni Gas & Oil Aim 3.6p £95m 575*
Range Resources Aim 1.9p £88m 630
Touchstone Exploration TSX C91¢ C$76m 1,769
Trinity Exploration & Production Aim 86p £86m 3,750
Source: Investors Chronicle & Bloomberg

*Investors Chronicle's rough estimate based on recent well data and historical production figures


Leni Gas & Oil

Despite having the lowest average oil production rate, Leni Gas & Oil is the largest Trinidad-focused oil junior by market capitalisation following a four-fold rise in its share price this year. Investorsare excited by the company's flagship Goudron field.

It was originally exploited by Texaco between 1956 and 1986 and still has about 100 old, inactive or poorly producing wells on site, along with decent enough infrastructure and direct access to an export pipeline. By reactivating previously shut-in wells, completing well work-overs and using new equipment, Leni has grown production from around 40 barrels of oil per day (bopd) in 2012 to a high of 388 bopd in October 2013. Eventually, it hopes to unlock further reserves using more expensive enhanced recovery techniques such as waterflooding.

In the past few months, however, Leni has focused on drilling new wells on the property under a 30-well infill development programme. The first well, GY-664, was completed on 30 May and intersected a whopping 300 feet of viable deposits in the Gros Morne sandstone reservoir, as well as a 79-foot deposit in the Lower Cruse reservoir. Initial production tests outperformed historical flow rates by up to four times, yielding an impressive 240 bopd. However, it will be interesting to see what the flow rate falls to after 30 days, as these types of reservoirs on the island have been known to deplete quite quickly. Notably, it has been nearly two months since the initial flow test was conducted, but Leni has not yet updated the market as to the well's current performance.

Leni has drilled three more wells since then, all of which intersected significant deposits (but flow test data has not been released yet). The company has also agreed to acquire another small producing field on the island, for which it recently raised £7m in a placing at 3.5p a share.

Range Resources

Range Resources has undergone a major makeover in 2014. The company's chairman brought in a new chief executive officer, along with some new non-executive directors in January. Range quickly initiated a farm-out or sale process to rid itself of non-core licences in Texas, Guatemala, Georgia and Colombia. Then came a partial refinancing of the company by bringing in a strategic partner and getting rid of several nasty equity swap arrangements.

Now, Range is focusing its efforts on Trinidad where the company is the largest private onshore acreage holder. Like Leni, its flagship Morne Diablo, South Quarry, and Beach Marcelle properties are old onshore fields that have been producing on and off since the early 1900s; their current output is a meagre 630 bopd from around 165 producing wells, mainly in the Lower, Middle or Upper Cruse formations. Field improvements on existing assets should continue to boost production incrementally, but a step-change in production will likely come from two planned activities: drilling new wells or implementing a wide-reaching waterflooding programme.

Last month Range completed the first new well at South Quarry since 2007; it came online at a stabilised rate of 70 bopd - a solid result. The company has four fully operational drill rigs and plans to drill additional targets across its portfolio over the coming year, possibly subject to a capital issue. It is also tripling the size of its waterflooding pilot programme at Morne Diablo, but a much larger scheme at Beach will take longer since it requires more extensive infrastructure.

Touchstone Exploration

Toronto Stock Exchange-listed Touchstone Exploration is producing three times more oil than Range or Leni from its onshore licences in Trinidad - yet its market capitalisation is roughly half that of its rivals. The chief reason behind the discount is that Touchstone also owns substantially loss-making Canadian heavy oil operations, which it inherited in a merger with Petrobank Energy earlier this year. That merger gave it access to Petrobank's large cash pile, though, and as a result Touchstone now has roughly C$44m in net cash (£25m). In 2014, the company plans to spend C$28m drilling 21 wells across its Trinidad licences to achieve a production rate of between 2,300 and 2,400 bopd by the year-end. It has drilled four wells so far, intersecting substantial commercial intervals in the Lower, Middle and Upper Cruse formations.

Trinity Exploration & Production (TRIN)

Local exploration and production group Trinity merged with Aim's Bayfield Energy last year, raising $90m (£53m) to pay for the exploration and development of some exciting offshore oil and gas prospects. Despite also generating cash profits of $35m from its producing properties (both onshore and offshore) in 2013, the group had just $9m in its treasury by 31 December 2013 after drilling an expensive exploration well offshore Trinidad, among other things. Thankfully, the TGAL-1 well was successful, encountering 547 feet of net oil pay; management believes the field contains between 50m and 115m barrels of oil in place. It will nevertheless take a few years to develop the new field. In the meantime, though, Trinity continues to spend furiously: it just drilled an infill well at its Trintes field, which experienced some unforeseen pressure difficulties, and the group has also agreed to buy four undeveloped offshore gas assets from Centrica for $23m.

FAVOURITE

Touchstone's shares offer investors the greatest value, although as they're listed in Canada, they're more difficult to trade. Three-fifths of the company's current market capitalisation is backed by cash and the its lower-risk, active drilling programme should provide plenty of share price catalysts. Importantly, Touchstone has committed to suspending its Canadian operations if it can't make them profitable this year, which could result in a positive re-rating.

OUTSIDER

Leni Gas & Oil's Goudron field undoubtedly has potential but we believe a lot of the upside is already priced in. Leni's market capitalisation is larger than any of its rivals, but the company is loss-making and its oil output is still minimal. True, successful flow tests from the Leni's current drill programme could quickly change this. But we believe a cautious approach is warranted for now until extended flow tests have de-risked the new wells at Goudron.

IC VIEW:

The new fiscal incentives in Trinidad should make it more profitable to develop small oil and gas fields on the island. We expect drilling activity to continue to ramp up and the recent positive share price momentum to continue.

BROKER'S VIEW
The islands of Trinidad & Tobago have enjoyed over 100 years of prolific oil and gas production, being located just seven miles off the northeast coast of oil-rich Venezuela. Trinidad is much more heavily industrialised than Tobago and has significant energy infrastructure: there are 12 methanol plants, 11 ammonia plants, a 160,000 bopd refinery and five LNG plants. An active and established oil services industry is in place, contributing significantly to the economy and accounting for over 40 per cent of GDP and 80 per cent of exports.
Gas production has been the focus in recent decades with a significant push made by the larger operators (led by BG and BP) to monetise gas via Atlantic LNG. However, oil production has been declining since the late 1970s, when it peaked at 230,000bopd and Trinidad is now a net importer of liquids.
Relative to other mature hydrocarbon regions, there are surprisingly few independents. In 2013, 27 were active with this number flat over a 10-year period. In comparison, the number of UK independents nearly doubled during the same period from 82 to 151. As a result, we believe Trinidad is not exploiting the secondary potential of its hydrocarbons - with mature fields and nearfield discoveries passed over by larger players. Moreover, effective lobbying for capital and fiscal allowances to incentivise exploitation of marginal fields has the potential to arrest the fall in liquids production.
The fiscal regime in Trinidad is burdensome but not terribly uncompetitive. We estimate that government taxes and royalties amount to 55 to 65 per cent of revenues. That includes a government royalty, an overriding royalty, a supplemental petroleum tax, a petroleum profits tax, a petroleum levy, a green fund levy, a petroleum impost and an unemployment levy.
Brian Gallagher is an oil and gas equity analyst at Investec. The above is a selection of his research relating to hydrocarbon exploration and production in Trinidad and Tobago.

[jamesiebabie] 01/8/2014 09:11

stateside - I've not seen it as I do not subscribe to it.

Can anyone send me a copy and I will post it?

[stateside] 01/8/2014 08:56

Hi Jamsie.
A good write up for Touchstone in the IC then :-)

[jamesiebabie] 30/7/2014 19:09

blik - I'm not sure that will happen. 2 weeks until the next update.

[blik] 30/7/2014 19:06

I'm awaiting proceeds from BGL takeover and will likely put it all in here.

I would love to know the flow rates on the new wells as they're completed!

[jamesiebabie] 30/7/2014 19:00

Well done; I need one of my others to perform to buy in reasonable size chunks.

[blik] 30/7/2014 18:57

Couldn't resist picking up another 4000

[blik] 30/7/2014 15:51

More big trades at 91c

[jamesiebabie] 28/7/2014 21:32

Shows confidence to be buying in the market and not relying on options.

[blik] 28/7/2014 21:20

Nice one JB. So he's bought total 250k at 91c in the past 2 weeks. Not to be sniffed at.

[jamesiebabie] 28/7/2014 21:04

For me it is! As well as adding in a small way from other profits, all being well.

[lazarus2010] 28/7/2014 20:56

Another one for the post-Eme portfolio!

[jamesiebabie] 28/7/2014 20:49

Laz - based on the current reserves that is a real possibility, without waterfloods; the game changer will be next year when they start the horizontal drilling as they maybe able to drain the reservoir more efficiently and recovery factors should start to increase. They also have some deep exploration upside on ALL their acreage. This is just the start. Netbacks are close to $40/bbl.

Then there is the offshore stuff and the new Ortoire block which is massive and has producing assets all around it.

The other elephant in the room could be the Canadian assets, which thet are only now just starting to look at in a more conventional way, i.e. CHOPS wells like EDG. The Canadian stuff is not even in the price.

[lazarus2010] 28/7/2014 20:38

JB, somebody asked where you see the share price going? What sort of potential valuations have you come up wth? Is $10 a possibility? ;-)

[jamesiebabie] 28/7/2014 20:29

blik - link now added to the header under 'other websites'.

Cheers

[jamesiebabie] 28/7/2014 20:25

blik - thanks for that, it is encouraging that he is buying and not in small numbers either.

I am looking to add next week as the story is compelling.

I will add the link to the header, many thanks.