Touchstone Exploration Share Discussion Threads

[mount teide] 18/3/2018 09:32

BG - thanks for bringing our attention to this latest interview.

Encouraging to note the first 2018 well is producing a restricted 56 bopd and once they ramp it up/increase the pump size over the next two months, expect production to stabilise in the 70-100bopd target range, similar to the average performance of the 4 wells drilled in 2017.

Interesting that the equipment being used to drill the second well has been brought in from outside T&T and utilises new technology, that not only enables faster drilling but is also more friendly to the reservoir - that this equipment has been secured at a more competitive price to the already heavily discounted drilling rates secured for 2018 from T&T suppliers using less technically advanced/reservoir friendly equipment is a tremendous achievement.

Pro....'Stocks like JSE, PTAL, SAVE, DGOC etc... are all fine, they will now much more slowly rise.

Stocks like TXP will now become more in focus for people with funds to invest as they have significant potential "upside" events ahead. That is being undervalued and with massive exploration prospects to be drilled ahead.

At this juncture do you want to have your money in a stock that may deliver 15% appreciation in the next two years......or one that may deliver 500% in two years.

Risk/reward will come much more into focus now that the very basic "all oil stocks going up with the rising tide" is pretty much complete.

People have been "hot swapping" funds around trying to catch each and every one rising.........now the focus will come back to the ones with the big upside.'

For balance:

Where do I start? And this is coming from someone holding 2.4m TXP a low teen average!

With the greatest respect Pro you're talking your own(and my) TXP overweight book.

If you think the O&G sector rising tide is pretty much complete then you need to do much more research - as there is an enormous amount of compelling evidence to suggest its hardly started/still in its infancy - and could turn into an equinoctial tide were the oil price to continue to strengthen back to its 10 year inflation unadjusted average of $78/bbl.

The companies you mention above are huge cash flow generating machines at very low oil and gas prices - JSE is cash flow positive under $20/bbl and produces circa $40/bbl cash flow at $55 Brent with its IMO 2020 Premium.

The management of those companies battened down the hatches at the beginning of the year to preserve cash by slashing capex to the bone and reducing opex - yet still generated strong cash flows despite a period of record low oil prices. Even that didn't stop JSE paying a maiden dividend, as the sector majors slashed theirs - Shell cut its dividend (and savagely) for the first time in 73 years!

Many seasoned investors could make a case for SAVE and PTAL to deliver not 15% but 500%+ over 2 years just from increasing production/sales from their existing producing fields. Zengas, who very eloquently in 2018 demonstrated a route for TXP to go from 12p to 150p by 2020/21, has like me shown a similar path for SAVE to go from 15p to 200p over 2-3 years and that was before the stunning announcement that Africa's largest and most important deep sea port and industrial city is to be built on SAVE's doorstep where they are the principal gas supplier with daylight second. A port development with design spec so large it will make the top 15 in the world for annual cargo throughput and be three times larger than Durban, Africa's current largest Port. SAVE's Niger exploration drilling success rate is 5 out of 5 in a basin where over 200 wells have been drilled and the current overall success rate is close to 85% - its been like shooting fish in a barrel.

Unlike TXP - further capital growth at JSE, PTAL and SAVE(Nigeria) will not rely on exploration success.

I'm acutely conscious I've had some outrageous good fortune with my relatively large investment in TXP, but to provide further growth to generate your 500% return figure over 2 years will require considerable further success with the drill bit - which carries significant risk, despite the stunning record to date.

To boldly suggest the companies you mention by name only have 15% upside over the next 2 years has the potential to make you look foolish, as its very likely to prove far from the smartest comment that you've ever made.

Carry out some decent research on those companies and it possible to see a growth route at an average of $60-$65 Brent for JSE to be 250+p(+258%), SAVE 100+p(+615%), and PTAL to be 75+p(+500%) in 2-3 years time WITHOUT carrying out any exploration drilling.

TXP could well outperform them all should Royston prove successful and the testing of Casca Deep and Chinook go as we would all hope - but it will definitely require furher success with the drill bit which carries significant risk.

AIMHO/DYOR

[grannyboy] 18/3/2018 09:25

Paul Baay seems quite confident they will get to 2000bopd within the first half...Good positive outlook!!

[sleveen] 18/3/2018 08:41

bg

added to header.

[bad gateway] 18/3/2018 03:07

Haven't seen this interview from the 15th on the thread...

[zengas] 17/3/2018 21:31

"And what about their production and profitability over the same periods?"


What about it ?

Jeez ross, Haven't i just mentioned their production and profitability - next to zilch !!! - Yet delivering a 50x and 26x return. It happenned year on year as those reserves rose and your question is what about production and profitability ?. Wasn't it enough to create a 50x and 26x return for investors in under 36 and 42 months to give a toss about production and profitability absence. If that's what your investment rationale is then your missing the obvious.

I'm not arguing and i don't see anyone as arguing anything about the possibility of what the m/cap may be in 3 years time or what number of shares there may be - but if they grow the reserves these are equally value creative and the more the merrier - full stop!

Many small and junior E&Ps never set out to make profits for shareholders from production. Many exist to prove up reserves and sell out to the bigger players some existing on production to finance their ongoing reserve search so there might never be profits showing despite growing the company and shareholder value through reserves addition.

[zengas] 17/3/2018 18:35

"you are illustrating your points using companies with multi-hundred million pound MCAPs".

Not at all, what you are missing is that they weren't multi hundred million pound m/caps - they became multi hundred million pound m/caps through reserve growth.

[che7win] 17/3/2018 17:10

Zengas, excellent points.

[zengas] 17/3/2018 16:19

Sorry but absolutely disagree with you. Reserves are not a lagging indicator. How much profits do you think TXP would actually generate from 18 mmbo reserves without concentrating also on increasing reserves ? which I am pleased to see they are doing (up by almost one fifth net and after 2017 production).

2 examples in point in Colombia

Amerisurs P2 reserves have fallen from 32.8 mmbo in 2013 to 23.7 mmbo now.
Their share price has lost 2/3rds of it's value doing circa 7k bopd (depleting by over 2mbls yr).

Meanwhile Parex who used to be in Trinidad.
2010 P2 reserves 5.9 mmbo. (Production 306 bopd).
2011 P2 increased to 10.7 mmmbo (Production 11,000 bopd).
2012 P2 increased to 16.1 mmbo P2. (Production 13,500 bopd)
2013 P2 increased to 23.7 mmbo (15600 boepd).
2014 P2 increased to 58 mmbo (25,175 boepd).
2015 P2 increased to 68 mmboe (27,300 boepd.
2016 P2 increased to 82 mmboe (29,600 boepd)
2017 P2 increased to 112 mmboe (36,195 boepd)

2018 (Feb 6th) P2 increased to 162 mmboe with a reserves life of 11.4 years up from 9.9 years as of the previous year. Production 42,000 boepd.

$163m cash. M/cap grown year on year and today cdn $2.8 billion = £1.533 billion. (Previously £2b+ in earlier years on a higher oil price but less reserves).

Now if you were to use Parex at end of 2017 and its 112 mmboe P2/36k production and £1.5b valuation - pro-rata at a tenth of that ie say 11 mmbo P2 and 3.6k bopd you perhaps have a valuation of a fraction of their current £1.5b - you mean to say growing reserves doesn't make a significant difference in valuation growth ?

Likewise if you were to ignore the small companies like IEC or Cove you would have missed out on maximum 50X and 26X return in them selling up on reserves growth in 3.5 and 3 years respectively. That contradicts your focus of "taking anything but the most long term view." Both loss making and one never producing from it's reserves. Another HOIL, sold 3 distinctive packages of reserves along the way for circa $3b combined despite for years producing sub 1k bopd .

Again regardless of TXP increasing production, there is a limit to what those reserves are worth in actual profits over x number of years.

However if at the same time you increase your reserves, you increase your valuation. If they say find/prove up a further 20 -40 mmbls then you can either sell those on at an in ground valuation or borrow against them or use some of your cash to develop them but ultimately they are a value driver whether you wish to agree or not. So as they break 2k bopd I wish to see a focus on building reserves in parallel to increasing production otherwise it really will be the most long term view.

[zengas] 17/3/2018 13:00

All the more reason to keep driving reserves growth.

Anyone who doesn't think reserves growth is equally important if they want to see real growth in the share price is missing the logic.

Reserves are collateral - can be sold, borrowed against or future developed. Where else did RBL come from ?

Of the 208 current drilling locations 52 are at proved locations and 26 at probable, the rest at unbooked locations.

If we presume that we get really stuck into the 52 proved locations then at a nominal 40 bopd/well theorectically can add a further 2,000 bopd.

From the 4 wells and recompletions last year we were able to get a net increase after production of 2.8 mmbls P2 to 18.5 mmbls P2.

They found additional deeper onbjectives below known pools/better pay.

Reserves drive value other than value from just cash flow.

If there were no ambition to drive reserves then what's the point. Why bother picking up exploration properties when at the same time we have plenty of development drilling opportunities?. Why do you think CERP with an increased shares in issue as i expected from my October post just edged over their year end 2017 production target to achieve 561 bopd and still reiterate their mid 2018 target of 900 bopd yet are valued at £30m. I beleive after their drilling campaign they will still need additional money if operating mid year on 900 bopd. It's because they have the reserve potential currently 11.8 mmbo P2 and what they think is a likely 2C of 22 mmbls to be future convereted - ie up to 33.8 mmbls plus exploration. So Schroders that supported them in my view at a £30m m/cap must realistically see potential for £100m of value creation and where reserves increase here could drive us on to a similar valuation possibly faster than relying solely on material production increases for a p/e valuation.

We have 18.5 mmbo P2. Keep increasing that also and it radically improves our underlying valuation regardless of where we are on the production front. I don't buy into O&G companies solely to live on an expected P/E ratio of profits. What happens when companies are making little profit from production, it's the underlying reserve value that helps keep the value alive so the more reserves the better.

We have a lot of hidden potential to increase value through reserve growth. Of our 2 exploration properties we have 4 known oil pools on Ortoire. Tech work supports low risk exploration plus potential for reactivation and infill development. Just outside the block there have been 4 significant discoveries of 10 mmbls, 30 mmbls, 60 mmbls and one of over 100 mmboe.

At East Brighton we have two standing capped wells , the PBM-1 well testing 328 bopd and 259 bopd from 2 seperate zones."The east Brighton Block is contiguous directly adjacent to the Brighton Marine field which has produced approxomimately 60 mmbls of oil to date" (Dec 2014)

[sleveen] 17/3/2018 12:36

Thanks for the explanation.

Egregious indeed.

[sleveen] 17/3/2018 11:10

ross,

Perhaps I am confusing the 2 taxes. My understanding is that capex can be offset against SPT as well as the PPT. TRIN incurred $1.8m SPT but didn't drill, relied on workovers/RCP etc for their production build in Q4 2017.

Happy to be informed I'm wrong and learn from that :-)

ZENGAS

Happy to accept your scenario and let's hope that turns out correct. T&T is faulted making the geology complex, so possible caveats to the best case though; that seems a reasonable position.

[sleveen] 17/3/2018 10:10

I would treat Zengas's figures as best case, I would be more conservative eg

"Looking at the figures from the other wells listed could these immediate 4 wells add over 400 bopd by end of next month"


Management are anticipating 50 to perhaps 80 bopd (but they may have higher flush production in the first few weeks)

TRIN have stated that they paid $1.8m in SPT in Q4,which means TXP are likely to pay SPT also, although the drilling activity may have offset a large portion of this. This will also be the case in Q1 2018 and probably 2018 as a whole, assuming POO remains at these levels.

[walter walcarpets] 16/3/2018 17:57

Quite right buffy, both are important - growing reserves brings much greater confidence.

[sleveen] 16/3/2018 17:06

181k sell @ 12.05p at 2.50pm just appeared.

[sleveen] 16/3/2018 16:00

Large late reported sell to come?

[buffythebuffoon] 16/3/2018 14:38

rossannan,

I don’t think anyone is focusing on reserves. People seem pretty centred on the BOPD figure. In reality, both are important.

The oil price is at a reasonable level. Most of the big players are happy around the $70 dollar level, so I think we’ll see it dance around that figure in the medium to longer term.

I see TXP as a well run company, led by a man who has done it before.

To me, it’s as much a certainty to make good money as anything I own, and it will do it with far less drama, aka volatility, than my other holdings.

Seriously, what’s not to like?

Buffy

[che7win] 16/3/2018 11:07

Zengas, 2000 bopd is only the start and I agree achievable on the next 4 wells.The company is adamant that this is only the start, they have big ambitions.