Touchstone Exploration Share Discussion Threads

[mr. t] 29/7/2018 16:15

In the six weeks since the agm, when the ortoire drill plan was described, Brent has been flat while txp's share price has risen 33% - comfortably outperforming other t&t oilers.Whether there's a future placing or not, the market appears to be endorsing txp's approach.Q2 results and another operating update are due in the next month, both of which I expect to be positive. Txp's a good share to hold imo, and I've bought more shares in the last couple of weeks.

[mount teide] 29/7/2018 14:03

Ross - in the 12 months since the AIM IPO the share-price has increased by 147% DESPITE a significant placing at 11.5p about 6 months ago.

If only all investments performed so well!

As a prospective TXP 'newbie' last summer, there were a great number of factors i took into consideration when considering an investment of which the risk of a placing/s to raise further funds to accelerate production development was one, but far from the most significant.

The factors with the highest investment case weightings were:

Answers to questions i put to the CEO
The long term, highly cyclical oil & gas market entering a new recovery stage
Sector experience and previous track record of the Management
Quality of the assets and terms of the operating licenses
Geographical location of the operating assets and T&T's Legal system
How the management plan to grow production
Size of the Inventory of production development drilling locations
T&T on-shore drilling costs - (hugely reduced by the 5 year sector recession)
TXP Operating costs - (also hugely reduced over last 5 years to survive)
High impact, low cost Exploration Upside (since upgraded to ultra high impact)


To be frank, there is always a risk of a placing/s in companies regardless of size, in long term, highly cyclical industries like O&G when they enter a new recovery phase post a very long and deep recession(ask the mighty Glencore's shareholders, who experienced an 85% recession share-price drop, suspension of the dividend and then a huge placing at the market bottom - result since? nearly 400% up!). Since companies will naturally want to take advantage of the improving market conditions to accelerate their recovery by rapidly increasing production into a rising oil/industrial metal price environment.

As has been shown at TXP over the last 12 months, the investment risk has been largely, if not completely insulated by the over 100% increase in the price Brent.

In the Copper sector post the H1/2016 recession bottom, 4 separate material placings to accelerate development and exploration drilling has not stopped the Asia Met share-price appreciating up to 1,500% - indeed the last placing earlier this year was taken in its stride at a 1,100% premium to the recession low. Having access to that placing money has enabled Asia Met to fast track a number of work streams that have, and continue to add considerable value - underpinned by the double whammy effect of a rising copper price and strong copper market fundamentals.

In long term, highly cyclical commodity markets the recovery stage(average 5-8 years with high volatility) post recession was probably best described by Warren Buffet: "A rising tide lifts all boats" ie its easy to make money when you've survived a long recession by cutting your costs to the bone and now with a largely fixed price business find the product you're selling has entered a new long term rising price environment generated by a half decade waterfall reduction in exploration drilling investment that has seen the Oil and Gas reserve replacement ratio in 2017 drop to an unprecedented 11% from a previous decade low of 50% in 2012!

IMO TXP is the mirror image of ARS in the O&G sector but about a year behind in its recovery - ask the highly knowledgeable ARS investors who filled their boots at circa 1-2p in late 2015/early 2016 about the impact of the risk of placings on their investments and the answer you would get back might be ; "it did't stop me from turning £10k into £100k-£150k with plenty more upside potential as the company continues to add value and as commodity market pricing strengthens further over the years ahead, before reaching its next cycle high probably around 2023-25".


AIMHO/DYOR

[marvelman] 28/7/2018 20:42

Top post MT.

[mount teide] 28/7/2018 11:29

ross - there are many ways to skin a fish ref: funding Ortoire.

Another alternative would be that TXP could fund from cash the drilling of the best two gas prospects first.

Should either prove successful - such is the potential asset value relative to the entire drilling cost of the Ortoire exploration programme, it could be used in a variety of ways to raise the finance to drill the remainder of the Ortoire prospects.

This would leave the entire cash flow generated from current production to finance up to 20 wells for the 2019 production development programme.


'looking at the Ortoire story (which tends to be presented on here and even by the company as a far, far better prospect than is suggested by TXP’s current MCAP'

After a year on AIM and despite the best efforts of management, TXP has probably moved from off the radar to a faint echo on the extreme edge of the largest range setting. This is largely because the market cap is probably still too small to interest the overwhelming bulk of the II community.

Of far greater significance in my opinion is the appearance on the shareholders register of a specialist high conviction O&G sector II of the highest quality in North Energy - a fund run by a team of ex Norwegian Sea O&G sector professionals, who have increased their holding from 3.3% to 11.1% over the past 12 months.

Following recent news of the size and number of the Ortoire prospects the company will be targeting with the exploration campaign, the share-price has broken out to a new AIM all time high - this is likely to continue over the next 5 months as we approach the commencement of the drilling campaign, aided and abetted by rapidly rising production from the seven new wells due to come into production during H2/2018.


While many PI's were buying Asia Met at a 1p to 2p share-price, it failed to attract any II's - it took the share-price rising to 4.3p before the first(JPMorgan) showed their hand. Others II's waited until the share-price had risen 11 fold before taking exposure via a large placing. The reality is that the company and the potential of its assets hardly changed from the days of 1p - its just that they are now on far more radars and others can see that even at 11p the upside potential like at TXP today is huge.

The collective knowledge of this board with reference to the investment case of TXP is probably, with the exception of North Energy, far greater than possibly any other II. Many PI's used a similar situation at Asia Met when the share-price was 1p to fill their boots with millions of shares, that II's were recently willing to pay more than 11 fold for when they finally got round to carrying out some research worthy of the name - but could have been picked up much, much cheaper as a result of the 2010-2016 copper sector recession if they had kept their eye on the ball.

The oil sector also experienced a deep recession over a similar time period which resulted in many T&T onshore operators going to the wall and drove down the share-price of TXP to such an extent it was possible to buy for £85k the same size shareholding as the CEO who paid £1m for his nearer the peak of the market.

What has changed regarding the business and assets since the CEO paid £1m for his shareholding?

Operating and employment costs have been dramatically reduced
Targeting the deeper plays has seen a 100% increase in production per new well
Drilling costs have fallen by circa 42%
A production development inventory of 208 drill locations has been identified
Annual programme of 20 or so recompletions offsets annual field decline rates
5 drill prospects targeting very large reserves have been identified on Ortoire
Brent has risen over 100% since the Q1/2016 recession lows.


Most Multi National and National oil companies have cut O&G exploration budgets to the bone over the over the last 5 years. 2017 was yet another record low year for discovered conventional volumes globally. Less than seven billion barrels of oil equivalent was discovered.
“We haven’t seen anything like this since the 1940s,” says Sonia Mladá Passos, Senior Analyst at Rystad Energy. “The discovered volumes averaged at 550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio in 2017 reached only 11% (for oil and gas combined) - compared to over 50% in 2012.” According to Rystad’s analysis, 2006 was the last year when reserve replacement ratio reached 100%.

Not only did the total volume of discovered resources decrease – so did the resources per discovered field. An average offshore discovery in 2017 held 100 million barrels of oil equivalent, compared to 150 million boe in 2012. “Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed”, says Passos.

“While there have been some notable successes this year, we have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels down the road,” says Passos. “Global exploration expenditures have decreased year-over-year for three consecutive years now, falling by over 60% from 2014 to 2017. We need to see a turnaround in this trend if a significant supply deficit is to be avoided in the future.”

As with Asia Met at a 1-2p share-price - long term cyclical markets can often at their nadir throw up some great opportunities that hindsight subsequently shows was staring you in the face - its often just having the confidence in your own research to buy when the herd and II's are still avoiding these sectors like the plague. II's usually come in once these cyclical markets have demonstrated sustained recovery by supporting placings often at large discounts - though missing out on the most spectacular gains that were there if they could have been bothered to look.

I consider today's TXP price as like buying Asia Met at 2-3p before the PI herd and non specialist II community woke up and smelled the coffee(that a new recovery stage is under way in these highly cyclical long term markets). As with Asia Met, I strongly suspect the situation at TXP will probably look very different in 12 months time.


AIMHO/DYOR

[2prsimo] 28/7/2018 10:57

I'm expecting 25p minimum before the year is out - when you compare it to TRIN and CERP's market caps, it's just too cheap. For me, TXP offers greater growth and exploration upside too. I'm also expecting the oil price to rise into the late 70's early 80's come the autumn and winter months.

[2prsimo] 27/7/2018 20:38

Just what I was thinking!!

[lord gnome] 27/7/2018 20:32

But surely meep, if they don’t hit a commercial discovery then they won’t want a licence extension.

[meep] 27/7/2018 19:29

It isn't the minimum work that concerns me so much, I am more worried that they need a commercial discovery to get the license extended.

The license "can be extended a further 25 years in the event of a commercial discovery." I don't know what a commercial quantity of gas would be on Trinidad, because they need gas, but gas is often just vented in Trinidad.

Exploration drilling, rather than development is high risk - especially as TXP say the play is "structurally complex". I suppose though if they are going to drill Ortoire 4 times next year the odds improve.

[marvelman] 27/7/2018 18:39

Posts overlapped MT..do you ever rest :-))

[marvelman] 27/7/2018 18:38

Another very informed and detailed post from yourself MT and I can only speak for myself when I say you are indeed a great asset to this BB...long may it continue. You will understand that there are those with carrying 2nd degree burns caused by the TRIN BOD who cannot risk another similar situation to occur via the TXP management. I am sure that there are many injured soles currently invested in TXP also. I feel that Rossannan is making a valid point if not at least to make us aware of the possibilities or even the likelihood of a cash call. I believe it will happen. I see TXP as a potential game changer for investors and stay invested myself but pray I do not have to visit A & E for a second time...regards.

[mount teide] 27/7/2018 18:29

Marvelman - 'So are we saying that with two years to run on the license before it needs extending $11 million needs to be spent in order to qualify for an extension?'

TXP is the ONLY T&T onshore producer to have complied with the minimum drilling requirements of their current licenses - the rest are at risk, including TRIN of having some licenses revoked for non compliance with the minimum requirement.

TXP need to drill four wells on Ortiore by 2020 to be fully compliant - this they plan to do.

If they target two gas and the two much shallower oil prospects - they may well be able to drill these for circa $5m - since the cost of drilling these wells is now considerably lower (by 40-50%) than the top of the market going rate when the license was originally secured.

[mount teide] 27/7/2018 18:14

Ross - 'Would I support a modest placing to separately fund the ultra high impact, low cost Ortoire exploration programme - you bet!'

The inference being should TXP wish to finance the proposed 20 well 2019 development programme from cash flow they could elect to part fund the Ortoire exploration programme via a modest placing or indeed as CFC mentioned a farm out.

Alternatively, TXP management could elect to reduce the 2019 production development programme to say 10-15 wells(17-22 from now), and potentially finance the four Ortoire exploration wells from existing cash/cash flow.

However, Paul Baay management's style suggests he might be reluctant to farm out more than 25% of Ortoire for a free carry, if any at all, since his technical team considers the prospects to be "low risk " and with very low drilling costs in the event of success compared to the huge upside valuation potential.

Lets say a 10,000 ft well targeting the up to 2,000ft of prospective pay in one of the gas prospects costs $1.0m - $1.5m to drill. In the event of success the size of reserves targeted could be worth £100m - £150m - a 25% farm-out for a free carry would give away considerably more than TXP's current market cap in upside for the outlay of a small fraction of that in drilling cost.

Paul Baay comes across as a hard nosed businessman with a talent for weighing up risk/reward - and would probably hate to give away that amount of potential upside if he could fully fund the drilling without putting the accelerated pace of the production development programme at risk.

From a shareholder's perspective, whatever internal/external funding route TXP take for Ortoire, the merest whiff of drilling success there has potentially huge valuation upside due to the size of the reserves they are targeting.


AIMHO/DYOR

[marvelman] 27/7/2018 18:09

...if the answer is yes then surely Rossannan's point is made

[marvelman] 27/7/2018 18:06

So are we saying that with two years to run on the license before it needs extending $11 million needs to be spent in order to qualify for an extension?

[crooky1967] 27/7/2018 16:39

Better technology and current drilling costs have possibly fallen significantly since those figures were produced. Especially as this years drilling is CND $900,000 per well.

[lord gnome] 27/7/2018 16:34

Stretch that USD 11 millions over 2019 and they could finance it out of cash flow quite easily.

[meep] 27/7/2018 16:11

From what I understand, the Ortoire license has rather complicated geology and it expires in 2020. Exploration is always risky I think.

They need a commercial discovery and to do the minimum work program to get a license extension.

"The Ortoire Block is located approximately ten kilometers east of Touchstone's Trinidad office in Fyzabad and covers approximately 44,731 gross acres (35,785 net to Touchstone). The License includes a commitment for a six year minimum work program which includes technical reviews, an 85 kilometer 2D seismic program and a four well drilling program. Capital requirements associated with the minimum work obligations total approximately $11 million USD over the initial six year term of the License and are expected to be funded from operating cash flows."

[captainfatcat] 27/7/2018 15:54

fwiw potentially I think its more likely they will farm out a percentage than raise funds (just for arguments sake say 25%) of Ortoire and get a fee carry on the first xyz wells. If the prospects are as good as reported the should have no problem doing so a partnership might bring further expertise (gas)to help with development and it would add further to validation to TXP's interpretation of the seismic interpretations.

Edit

Zero risk with potentially massive upside seems like a win win scenario to me.

[spangle93] 27/7/2018 14:53

Rossannan - the two aren't inconsistent as Ortoire is slated for 2019 drilling

Though just to add that while risk appetite in the sector comes and goes, it's a truism that fewer institutions would sign up to bankroll exploration than to fund production development.