Touchstone Exploration Share Discussion Threads

[mount teide] 22/2/2019 11:43

Spangle - TRIN does currently have a lower breakeven price - although the cash generation seems to suggest a higher price than management claim

I sold 75% of my 1.6 million TRIN holding post the huge cash raise and reinvested it mostly in JSE and TXP(for the Ortoire high impact upside).

Brent now at $67.5 - with JSE's Montara oil price hedge and regional $2.5/bbl premium to Brent; they should currently be averaging 72.25/bbl on Montara's 10,000 bopd production.

With an operating cost of circa $22/bbl - by my maths the Montara field should currently be generating $50+/bbl of operating cash flow / $15 million /month.

Applying a target of 84% field uptime rate for 2019 - that suggests a potential annual operating cash flow of $151.2 million at $67.5 Brent and average production of 10,000 bopd - not too shabby for an asset that cost $81 million net!

[ileeman] 22/2/2019 11:33

Oil continues to break into new weekly highs.

[spangle93] 22/2/2019 11:04

Hi Rossannan

I don't hold/follow TRIN, though naturally it's interesting to know what they are doing. I totally understand your last statement, which also is true for RRL and CERP.

Just wondered if you'd time to elaborate on
"TRIN and TXP are quite different propositions with TXP clearly being the higher risk / higher reward play and significantly more geared to the oil price."

e.g. does TRIN have a lower breakeven price?

[lauders] 22/2/2019 10:40

Malcy made some comment on the recent TXP news that I missed. Haven't visited his blog for a while. Nothing new, but not exactly "talking excitedly" about TXP:

Touchstone Exploration

Touchstone has raised £3.8m at 12p per share, a discount of only 4% to fund the drilling of an exploration well in the Corosan West region of its Ortoire property (80% WI) in Q2. It is clear that the company is concentrating on drilling the really big prospects and those with a minimum tax obligation if successful which is certainly wise.

In that respect the company announce that due to crude price volatility they have ‘held back from recommencing our development drilling programme’ and will drill only based on the ‘prevailing’ commodity market. Again the use of cash flow is to be carefully monitored and money raised will be for the transformational prospects such as at Ortoire.

[ileeman] 22/2/2019 07:56

Find it hillarious ros comes on this thread and ramps TRIN every other day lol

On another note, HAYD yet another example how hard it is to raise at a good price in this macro climate.

[mount teide] 21/2/2019 18:40

'So have you modelled whether an LNG project is likely to be viable here?'

Why would we do that when our research has established that the Shell owned Carapal Ridge/ Central Gas Field is just a 2-3km tie in away from Corosan - has spare capacity according to Paul Baay who has met with the management, and a direct pipeline access to the Shell owned Port Fortin LNG export terminal, one of the ten largest in the World, which also has plenty of spare capacity.

Since October 2018 the oil price has experienced a two time in twenty five year event - a price drop of more than 40% in 8 weeks. Most small/mid cap oilers experienced similar falls to TXP - with just a few notable exceptions. My JSE investment is more than 10% up from its summer listing price while the last 25% of my TRIN investment is over 50% down from its summer high.

[spangle93] 21/2/2019 12:10

iLeeman (3837)
Good insight. I remember some friends who were involved running an AIM oiler telling me that if a broker has a client or an existing insti that say they want to invest more, you should accept whether you really need the money or not, because it's better to do it on positive terms. It's not how the RNS was written, so the perception is wrong, but it may indeed be the case.

On the other hand, if they were flush with cash, it would be like being taken out for a burger after you've just finished dinner. ;-)


MT (3836)
I agree with your relative ranking, though 35 wells is probably more than would be needed now they seem to be identifying the sweet spots.

Ross (3839 and recent)
The relative economics of oil and gas depend on many factors. In the Lower 48 in the US, the "BOE equivalence" is about 20, rather than the 5.8, which is derived from calorific value and has nothing to do with value. However, in areas where there is more demand or lower tax on gas, the equivalence can be less than 5.8.

In Trinidad, there's a route to an undersupplied plant via a client who we've been told is willing to accept the gas because it improves teir plant economics. From there, the gas can be transported to an existing LNG facility - there is no need on Trinidad for a new one (and Corosan certainly couldn't supply sufficient to justify one). We don't know if there is a condensate yield, but that could again improve value/BOE.

[mount teide] 21/2/2019 11:10

'Is that not a little misleading, given that this one is about gas rather than oil and that even if it does double TXP’s boepd it will far from double its revenue?'

LNG shipped into the energy hungry markets of Asia routinely commands between $55 and $90 a boe according to seasonal demand.

Gas production in T&T attracts much lower overall taxes/royalties compared to oil and at Corosan would have a very low development and production cost. So the net result compared to oil at circa $60-$70 Brent produced in T&T is likely to be highly attractive.

Much lower overall taxes has been one of the key drivers behind why T&T's nat gas production has tripled since 2000, while its oil production has halved.

As mentioned before if you view objectivity through the lens of a nickel and dime short term trader petrified of losing money on any investment - industry research has shown that 96% do in fact lose money over the long term. Unlike the billionaire long term investors hall of fame, the billionaire traders hall of fame has got no one in it.

Two friends and i have refined our long term investment approach over two decades down to identifying companies in sectors we understand and that are managed by people with a long track record of success, particularly during the recovery phase of long term highly cyclical markets like Shipping, Industrial Metals and O&G.

I post our research for any who wish to read - we watched most short term traders trade out of Clarksons in 2001/2 after the share price doubled from 100p to 200p - holding through to today has seen our capital grow 25 fold together with dividend payments totalling 8 times our original investment, and a current annual dividend yield equivalent to circa 90% of our original buy price.

Our research has identified that management/companies that were highly successful during the recovery stage of previous shipping/commodity cycles often have an uncanny knack of repeating that success in future recovery stage cycles. As a consequence, after the shipping, industrial metals and O&G markets bottomed during 2016 we have heavily weighted our portfolios accordingly and expect 2024/25 to be at or close to the next cycle peak.

[ileeman] 20/2/2019 22:00

Spangle nice post.

Despite saying they did not need to raise last month, it seems they got offered most of the money from their two largest cornerstone shareholder you cant fault them for accepting £3million+ of sticky hands at basically no discount...shows the quality of company, a rarity on AIM imo.

[mount teide] 20/2/2019 20:38

Spangle - if Ross had called for a placing based on a prediction that Brent would fall 43% in eight weeks during Q4/2018 it would have deserved respect - calling for a placing while Brent was continuously averaging over $75 in the 6 months leading to its $86 Q4 peak had little credibility.

The fall in the price of oil during Q4/2018 was in fact the third largest percentage fall in that time frame in 25 years - so we are talking highly unusual circumstances. That it has since recovered 34% in the last 8 weeks suggests Paul Baay's comment that the production development programme could recommence as early as March seems plausible, particularly when considering the average price of Brent over the last 8 months:


Brent average price
$75 - Q3/2018
$67 - Q4/2018
$60 - Q1/2019 to date

I agree with your comments ref: regarding Ortoire as a series of independent prospects with significantly varying risk profiles and potential. Corosan is clearly regarded by the management as a low risk, relatively low cost prospect that justifies the decision to go it alone.


To double existing production they would need to drill in excess of 35 oil wells at a cost of $35 million, some ten times the cost to drill Corosan for potentially the same production result - suggesting in the event of commercial success the Ortoire prospects are potentially, an extremely cost effective way to increase production compared to sinking $1m wells into the existing producing fields.

[brasso3] 20/2/2019 20:17

Spangle.

Great post. Sums up my feelings too.

What is becoming clear to me following CERP, TXP, TRIN and RRL is that it is almost impossible to make money in T & T with WTI below $60/ barrel.

[sleveen] 20/2/2019 20:02

Be interesting to see how much SPT is paid in H2.

[spangle93] 20/2/2019 19:14

Luckily I was on holiday for a week until today, which give the space required not to send the email to the CEO that that my initial reaction would have led to. More space was gained by reading the 80-odd posts since.

Yesterday's RNS certainly meant I (and at least 2 other regular posters here) had wasted our time spent sitting through the presentation given last month, where every indication was that our economist CEO knew how to cut the coat according to one's cloth, managing the budget allocated to exploration and development drilling according to cash flow, with potential consideration for holding farm-in discussions. One phrase I noted down, in reference to exploration costs, was "TXP can fund $5MM wells out of cash". Another was "Exploration and development will be funded from cash flow, so if Brent falls, fewer (dev) wells will be drilled". or another one "Capex for 2019 – 3 Ortoire, plus 4-5 dev wells = $20MM. With a partner, Ortoire would be cheaper so more dev wells". "Hopeful of another 11 wells in 2019, depending on oil price."

Now it seems that only development will be funded from cash flow, which then raises the question about what happens about funding for Balata West or Ortoire Central, and means we have another 6 months of rossannan and sleveen's posts!

Moreover development itself is looking less rosy. "Touchstone has held back from recommencing a development drilling program ... the Company expects to use cash flows from operations to finance future development drilling based on the prevailing commodity market." Even taking a chunk of exploration money out of the plan doesn't immediately restart the development.

I realise you can't say "mates, gotta tell you, things are looking pretty bleak. Done up like a kipper. All the baloney about drilling loads of Ortoire wells - OK, gotta fess up, not going to happen without a placement". Even if one is needed you have to give every impression that you're negotiating from a position of strength.

But why bother to hold an unnecessary investor evening, sell the vision, and then re-write it 3 weeks later, ensuring credibility loss to the PI community. Step away from the microphone and videocam, Mr B. Everything henceforth will be greeted with "really? - you mean that? - or are you just saying it?

And looking beyond, if they're needing a placing, it's not looking like 4Q net back and cash flow figures are going to be great reading, is it?

So, the positives
1. Something else that was mentioned in the presentation was the production decline from wells drilled in the last 2 years was small, as was opex/well. So assuming this is true, as we now have to say, each month without drilling should increase the war chest (although my limited understanding of how it works believes that if we're not spending capex, we have a greater SPT hit).

Also, production in the short video was quoted currently as 2,100 bopd. Assuming it is(!) that would be the highest stated figure yet.


2. The discussion on Ortoire implied that CoS varied from prospect to prospect, and that they would only farm-out if they felt the risk-reward demanded it. So to want to go it alone with Corosan, to the point of raising money directly for it, must imply that they are pretty damn sure that it will be a geological and economic success.

The posts over the last week have implied that Ortoire is a single entity from a CoS, risk and value perspective. The CPR doesn't conclude this at all, and I think this placing also reinforces that we need to stop thinking "Ortoire" and start thinking of the area as a series of independent prospects with very different potential.


3. The placing could have been bigger, and could certainly have been at a greater discount, a la TRIN.


4. It's been accepted by key institutional shareholders, so the new shares hopefully will not be dumped on the market if the price rises by 1p.


5. It's now as close to nailed on as it can be that Corosan will be drilled in the summer, so there's a good chance of a transformational event happening in 2019.


Ross/Sleveen. You have called it all along and taken the cr*p accordingly, so we need to acknowledge you were (eventually) correct. To be slightly argumentative, you'd been saying the company needed a capital raise all through last summer, but if oil had stayed at $75/bbl, I'd be very surprised if this raise would have happened, so macro events rather than company-specific performance were the catalyst.


OK, that's my rant over. I'll take the tablets, catch up on sleep, and try to be more optimistic again shortly.

GLA

[ileeman] 20/2/2019 17:43

You call it ramping I call it facts xD

[sleveen] 20/2/2019 16:33

Mediocre ramping iLeeman.

Must try harder!

[ileeman] 20/2/2019 16:31

Oil $67 and $57...current production hitting 2100, TXP printing cash.

[che7win] 20/2/2019 16:26

Oil rocketing, and we continue to outperform TRIN :-)

[ileeman] 20/2/2019 13:39

TXP are targetting at the very minimum 25% growth from current production end of 2019 and from inteview looks like they want to target 40-50% growth. CEO stated Break even is significantly lower than $40 so unless oil drops below then TXP is very well placed, much better placed than TRIN lol reckon oil heads above $70 in 2019, if you are not bullish oil then you should be investing in oil stocks in the first place.

TXP now have a cash injection the majority coming from institutions, the beauty about TXP is not only is their production growth going vertical they also have the added bonus of Ortoire and no doubt about it Ortoire is a gamechanger but dont forget TXP is already producing a lot of oil so not dependent on Ortoire.

[captainfatcat] 20/2/2019 13:30

ross vulnerable true but I am very hopeful that vulnerability will later this year be substantially offset *IF* txp can add some gas production to its book.

There some talk of potential changes to T&T SPT terms maybe in March but think chances are slim but it would certainly be welcomed by all T&T explorers.