Touchstone Exploration Share Discussion Threads

[mount teide] 14/8/2018 12:00

Ross - the early calculations were largely based on the up to 20 well programme initially proposed by Paul Baay - subsequently amended to an initial 10 well programme and now upped to 14 wells.

[mount teide] 14/8/2018 11:54

Mr.T - balance and well researched analysis - thanks for posting.

Historically, Petrotin has taken a brokerage fee in a range of 11%-13% of the benchmark Brent price and pays end of month without fail - why it varies has never been explained - worth a question to Paul Baay at his next web presentation.

Some TRIN shareholders recently attempted to pin their management on this question (TRIN gets a figure based on WTI from Petrotin) without really getting a satisfactory answer.

Pure speculation - the calculation of the size of the discount we achieve from Petrotin may well be affected by the moving price differential between the Brent and WTI benchmarks.

[mount teide] 14/8/2018 11:38

Ross - its good job you did't get into Asia Met at in 2015/16 - we've had 4 modest placings since, the latest at a 1,100 premium to the 2015/16 valuation - and the business is still considered materially undervalued compared to their peers by the covering analysts, who have a consensus 12 month price target some 20 times the 2015/16 valuation.

'I would have thought Ross that the level of debt was of more concern'
TXP with a net debt of circa £6.5m has a debt to capital ratio below that of BP(38% with net borrowings of £40bn) - it is around the average of the major oil sector multi nationals.

With the likely cash flow generation over the next 18 months - i am probably far from alone in having every confidence that Paul Baay, an economist by training who navigated TXP through the last oil sector recession far better than any of the other T&T onshore producers, including the TRIN management who came within a whisker of losing everything, will continue to manage the business in a similar way to the business he built from scratch to 20,000 bopd during the recovery stage of the previous oil market cycle.

[pro_s2009] 14/8/2018 11:31

Touchstone Exploration

2Q results from TXP where production has risen by 11% to 1717 b/d from the 1st quarter where three wells and four recompletions were achieved. Netbacks generated an inevitable significant increase to $38.19 pb giving scope to up the number of wells to be drilled this year and net loss was reduced. The company has extended the $15m loan and repayments by a year which takes the pressure off, for now. I am looking forward to meeting Paul Baay again as our chat is way overdue.

[mr. t] 14/8/2018 11:22

For me the low risk drill plan, associated oil production increase, Ortoire upside, high gearing (I'm bullish on short to medium term oil prices), stable political environment, competent management and low valuation make TXP a compelling investment opportunity.

I'm pleased to hear about the four extra drills this year, and expect to hear good production news in the coming weeks as recently drilled wells come online.

However the financial aspects of today's results were below my expectations. That may be as much to do with my expectations as the results. I forecast CA$4.5m Q2 operating cash flow in post 1798:



Whereas today cash flow has been announced as CA$3.3m - 25% less. What's behind the difference? Here are the big things:

1) Q2 production was 1,717 bbls/d compared to my forecast 1,740bbls/d. I had expected early June's 1,821 bbls/d to continue throughout June, which it didn't for reasons well discussed on this bb.

2) Average Brent was reported as US$74.53 whereas I expected US$75. I checked on EIA's website and US$74.53 is the right number. I must have used a poor data source last time.

3) Realized sales price was CA$80.04, whereas I expected >CA$83. Part of my forecast was wrong as I got US$ Brent wrong, however this should have been cancelled out by the CA$ being weaker against the US$ in Q2. What else happened?

TXP sells its oil to Petrotrin and Petrotrin determines the price, as a discount to Brent. That discount increased in Q2 compared to recent quarters. This is something I don't like about TXP, the price received for its oil is determined (as far as I can see) arbitrarily and opaquely by a third party. What's to stop Petrotrin insisting on greater discounts in the future? I need to learn more about this - if anyone can help please let me know.

4) Operating costs were more than I thought. I expected them to stay similar to Q1, but instead they increased from CA$2.7m to CA$3.0m. I was overoptimistic to assume flat operating costs while drilling and oil production increased.

One thing I did like was that one of the key capital management ratios - net debt to trailing 12 months funds flow from operations - has improved from 1.7 in Q1 to 1.4 in Q2. It is likely to improve further as the low operating cashflow q3 & q4 2017 figures work their way out of the calculation as this year goes on.

Based on TXP's current capital structure and cash flow, I do not agree with the logic of those saying an equity raise is likely. It is unnecessary, unless the oil price declines markedly or costs rise significantly more than expected. TXP gave some assurance in the results too:

"We expect our liquidity position to be stable going forward as the new wells drilled in the quarter are placed onto production and optimized."

In short, one good thing (future prospects maintained or improved) and one bad thing (historical figures not as good as I hoped) from today's results. One other good point - I've learned something delving into the detail.

I'm pleased to hold TXP, and expect to be well rewarded over the next year or two.

[mount teide] 14/8/2018 11:02

Ross - carrying out an average of 5-6 well recompletions a year has historically at a stabilised performance of 10 bopd per well over the following year, generated sufficient additional production to offset the low historic field decline of 6-7% a year.

This is the key data to focus on - since it is far less safe to use short term data to attempt to draw conclusions with any reliability, particularly since in some quarter periods the well recompletions may have been carried out towards the end of one quarter and near to the beginning of the following - also in early Q1/2018 two primary zones of wells initially drilled in Q2/2017 were perforated and put on production further completing the calculations.

[meep] 14/8/2018 11:02

A bit of both I think Esmeralda. They can roll over some debt imo.

But they need cash to fund drilling too and I'm a bit worried about them signing up Range (RRDSL/ RRL) to do the drilling. RRL are a mess and going bust probably.

[esmerelda] 14/8/2018 10:51

I would have thought Ross that the level of debt was of more concern rather than how the bopd is calculated. The first thing I saw on reading the results was the 600k loss and the suspension of long term debt repayment (with the Banks permission of course). At 2000 bopd they should be profitable but there would be insufficient time left to repay that loan before maturity. So there are two choices you roll the debt over into a new loan or you raise 15m to pay the balance off (and here I am assuming they would want to keep 10m as working capital). I think the market price reflects the latter as being the most likely outcome in 2019.

[astorcourt] 14/8/2018 10:45

the market has called this one right. further to fall.

[mount teide] 14/8/2018 10:13

Ross - after today's announcement your time might be better served attempting to work out how TXP is going to add production from more wells in H2/2018 than our TRIN investment after a recent 40% dilution, is going to add in the NEXT 18 months to the end of 2019!

Still await a reply to my email to the TRIN management asking for an explanation as to why some 2 months after the huge surprise placing at a 40% discount to the previous high, the market is still to be informed as to the commencement date of the drilling programme, never mind how many of the wells are likely to be drilled in 2018.

[danieldanj] 14/8/2018 10:08

Touchstone Exploration (TXP) News Out Just Now

[costax1654x] 14/8/2018 09:56

Guys have a look at a company called BigDISH,Amazing app,can be next JustEast only 15 mil mcap

[mount teide] 14/8/2018 09:55

ross - The 16th Jan production figure after the Q4/2017 well workers had stabilised was 1,492 bopd.

The late Feb 2018 1,649 bopd figure contains additional production from up to 5 well work-overs in Jan/Feb - which we know from the 2017 well workover performance graph in a recent company presentation, often produces some remarkable very short term spikes in production before stabilising to an average of 10 bopd over the year following completion.

It is simply disingenuous to use the 1,649 bopd figure for a base case since it contains well workover production data that is totally inconsistent with the historical average 10 bopd stabilised incremental figure.

[mount teide] 14/8/2018 09:34

wise - 'One thing that I was confused by it said q2 increment from 5 Wells was around 183 barrels, I thought it was only from 3...'

They have included a few weeks of initial production in June from wells 4 & 5 in that figure. (Effectively it is from 3 wells since the impact of wells 4&5 on that figure will have been negligible over the quarter.

[flyinghorse1] 14/8/2018 09:26

The 4 wells are needed to underwrite the 2019 annual average i expect

[awise355] 14/8/2018 09:25

One thing that I was confused by it said q2 increment from 5 Wells was around 183 barrels, I thought it was only from 3...