Touchstone Exploration Share Discussion Threads

[fardels bear] 29/9/2018 10:08

Then what though?

[sleveen] 29/9/2018 10:06

profit taking?

Buy at 12p sell at 20p very nice, very nice.

[fardels bear] 29/9/2018 09:30

So why the big retrace?It can't all be down to rossbangin' (on)..

[mr. t] 28/9/2018 05:22

Thanks Spangle, your comments make sense.

[mount teide] 28/9/2018 01:38

Spangle - thanks for your thoughts.

'they'd far rather take the processing and transportation costs than get involved in the field itself.' - With regard to Corosan prospects i would agree.

The Ortoire Central gas prospects are an order of magnitude larger than the Corosan prospects (each potentially twice Shell's Central Block) and might be looked at differently. Since in the event of significant drilling success on these mega prospects its difficult to see a company the size of TXP taking the route of commercial development - as with the nearby Carapal Ridge in 2004, an outright sale would surely be the most likely outcome.

[spangle93] 28/9/2018 00:16

otemple3 - well, there are many on this thread who are better blessed at interpreting accounts, so take this with a pinch of salt. All I was trying to do was reconcile the $2MM a month quoted by Baay against the $1.1MM noted by Mr T

In the Interims 18th August, there's a table titled
"Interim Consolidated Statements of Comprehensive Income (Loss)"

First line is revenue at $12,508k for the quarter
There are two other lines: Royalty ($3,531k) and Operating Expenses ($3,010)
If you subtract these costs from the revenue and divide the result by the 1,717 average barrels and 91 days, you get precisely the netback figures shown in the presentation, and also the $2MM/month

In the original table
"Financial and Operating Results Summary"
It states funds flow from operations $3,258k or $1.1MM roughly per month

this comes from the table further down the results called
"Interim Consolidated Statements of Cash Flows"
Which starts with the net loss of $692k which is the earnings after tax, then adds back all the non-operational cash items that were taken out of the comprehensive income column, to get back to $3258

So, to within noise, that I can't resolve ("others", Forex gap), the gap between the $2MM a month (revenue minus royalties, minus operating cost) and the $1.1MM/month is arises from G&A, tax due, and finance cost

[otemple3] 27/9/2018 23:28

Hi SpangleI can follow the cash flows until the critical 'Buckets of positivity' - can you elaborate as I am struggling to see where the positive cash flow is coming fromThanks

[spangle93] 27/9/2018 22:57

Mount T - and finally...

Ref: Corosan: it would surely be a logical step for TXP to approach Shell to offer them a farm-in deal on the Ortoire Central 11,500 - 12,500ft mega gas prospects?

Yes it would certainly be good to approach Shell

As in the event of success any commercial development of the assets would inevitably involve Shell and since the upside potential of the prospects is so large, to lose say 25%-30% for a substantial carry would be totally immaterial for a company with a present market cap of £21m - plus it would likely see the drilling of these prospects brought forward.

Well, since this is conjecture, and late in the evening, I invoke the use ofcaptainfatcat's analogy of a pub discussion....

I rarely, if ever, see Shell as a non-operating, minority equity partner to a junior operator. If they were in, they'd want much more, and probably to run the show

Also, if they did enter, based on how majors operate, I'd suggest their modus operandi would be to farm in AFTER any discovery

Shell decision-making process and speed in comparison to a micro-cap is labyrinthine, so yes, having them on-board might speed up development, but it could also delay things.

Finally, I'd argue in the virtual pub that for a company of Shell's size, Corosan is not material enough to bother with, and they'd far rather take the processing and transportation costs than get involved in the field itself.

[Watch for the RNS to the contrary tomorrow ;-)

[spangle93] 27/9/2018 22:43

Mount T - ref your pipeline question, there are so many variables to the cost of a flowline that it would be really hard to give any kind of a usable answer, e.g. pipe diameter, wall thickness, terrain to be crossed, whether it has to be buried, plus whether mobilisation cost could be spread across other flowlines. Then there are the tie-in costs at Shell's plant for which TXP would be liable.

The company does not express any difficulty in tying this back to Shell's plant, but there would be rights of way to acquire before any digging could be done.

I found one estimate in a CPR for a 3.5km tieback of a well, of US$1.1MM, excluding tie-ins but including a small compressor. I think the land would make pipeline laying more tricky than in that location, so if I were to take a flying guess, I'd say $1.5MM total, including reception facility tie-in, +/- 100%. But in practice, who knows. [I don't want someone digging this out 2 years hence and saying "but you said $1.5MM ..." ]


edit - post 3000, sweet!

[spangle93] 27/9/2018 22:02

Mr T - I guess it depends what he meant by operating cash.

He tends to talk in netback per barrel quite a bit, e.g. slide 6 of the September presentation. If you use the same method on the gross totals (i.e. not per barrel) and just remove royalties and direct operating costs from the 2Q gross revenue, you get $5.96MM (Canadian) or pretty much exactly $2MM per month

If you add G&A & DD&A that's $2.2MM more cost, then there are some other categories like loan servicing that add cost, but then there are other buckets of positivity, until ultimately you get to the roughly $1.1MM per month headline "funds flow from operations"

[mr. t] 27/9/2018 20:45

Spangle, thanks for sharing your analysis.

One comment I have is on Paul Baay’s statement that TXP is generating $2m operating cash per month. I’m surprised it’s that high. In Q2 2018, TXP averaged 1717b/d production, Brent averaged $74.53, and operating cash flow averaged less than $1.1m per month.

In July, average production was only slightly higher at 1757b/d and Brent remained about $74.50. We don’t know August production figures yet, but Brent was lower at under $74 and the September valuethemarkets article quoted PB saying production was stuck around 1800b/d.

Given Jul and Aug production was only slightly above q2 and Brent was the same or lower, how come monthly cash flow is almost double what it was in q2?

Factors I can think of are there may have been cost efficiencies, more operating costs have been capitalised with the increased drilling (so are carved out of operating cash expenses), and/or the realized price discount to Brent has reduced.

Even considering the above, I find the q2 cash flow figures and Paul Bays $2m comment hard to reconcile.

[buffythebuffoon] 27/9/2018 20:40

Hi Spangle,

6) The question was:

Given the relatively low valuation of TXP against other operators in the area, do you think the debt is a concern to the market?

His response, which was mildly tetchy, was that the debt was a cheap loan that he saw no reason to repay before he had to. This missed the point the questioner was raising.

Buffy

[mount teide] 27/9/2018 14:36

Spangle - thanks for your reply - what would you estimate the likely 2-3km tie-in cost from the Corosan prospects in the event commercial success to Shell's Central Block gas field infrastructure/pipeline network?

Ref: Corosan: Considering the good relationship with Shell the major shareholder and operator of the Port Fortin LNG terminal; who has freely given TXP all their technical drill data/logs etc for their nearby Central Block gas field/wells, it would surely be a logical step for TXP to approach Shell to offer them a farm-in deal on the Ortoire Central 11,500 - 12,500ft mega gas prospects?

As in the event of success any commercial development of the assets would inevitably involve Shell and since the upside potential of the prospects is so large, to lose say 25%-30% for a substantial carry would be totally immaterial for a company with a present market cap of £21m - plus it would likely see the drilling of these prospects brought forward.

[crooky1967] 27/9/2018 12:46

awise355 - Sorry that was me, sold 25% of my ISA holding to buy some RRE. It that comes off I'll buy them back.

[highly geared] 27/9/2018 12:16

45 wells over 3 years should give say 3,000 bopd (being conservative). Allowing for declines of existing wells, hard to get a run rate but I'd have thought 4,000 bopd going into 2021-22 without Ortoire (the high impact stuff.)

The market cap is £22 million; go figure.....

[awise355] 27/9/2018 12:16

Someone sold £20k are they off setting buys and sells to keep prices at this level?

[awise355] 27/9/2018 11:57

Just topped up with some shares, come on has to be news flow soon, next week? So many Wells to come on stream let's just hope they are average Wells, not below, not above just average is good enough for the milestone....

[spangle93] 27/9/2018 11:39

Mount T -

I hadn't observed that distinction - but will accept your word.

When building an estimate, you can't just extrapolate a per-ft cost to the greater depth - in any case this is a very different province so the lithology down to 7300ft in the SW isn't the same to that depth in Ortoire. All of these below will affect time and/or cost

- They'll probably need to run 1, if not 2 additional casing strings, in these less benign thrust areas

- They are likely to need a higher spec rig commanding a higher day-rate than for the production wells

- They will do a lot more wireline logging and maybe coring

- I think they'll drill slower in these thrusted regsions, and also add on significant contingency, as they are already a long way down the learning curve on the production wells, but the exploration wells are less charted.

Nonetheless, I agree fully with your point - you'd have to have more than 3x the cost and time of the regular well to get to $4MM for Corosan, which is hard to see without further information to the contrary

[mount teide] 27/9/2018 11:06

Spangle - good summary

Checked the Oil Capital video presentation again and the $4-5m cost per well specifically refers to the cost of the two Ortoire Central gas prospects with 11,500ft - 12,500 ft estimated terminal depths. (19m 00s in).

With respect to the first Ortoire Block drill on the Corosan - the presentation gives as an example the Corosan West Prospect - which if selected as the first drill, is 5,200ft to the top of the Herrera and has a projected terminal depth of 7,500ft. With est volumetric gas in place of 30 bcf (risked), 121 bcf (unrisked).

Surely the cost to drill this well should be substantially cheaper than $4-5m since TXP has already drilled infill wells in 2017 to circa 7350ft for circa $1.2m?

[walter walcarpets] 27/9/2018 09:40

Spangle: Someone will have something to say about it; can't think who? ;-)

[captainfatcat] 27/9/2018 09:39

Cheers Spangle

[sleveen] 27/9/2018 09:21

Spangle93

Good summary thanks.

[spangle93] 27/9/2018 09:11

Sorry to be late to the table, but I just had a chance today to watch Paul Baay's presentation at the Oil Capital conference uploaded on Sept 12. I have to admit he inspires confidence when you hear him present (no shuffling of papers or dodging questions, facts at the fingertips), but I appreciate that doesn't always equate with good share performance.

A few notes, that are pertinent to ongoing "P" discussion. Please note that no mention was made of currency, so I've just written $ - I assume it's CAD based on previous discussion here.


1. "Much of the opex is fixed cost" - thus netback is strongly geared to increasing production
Swab production of just under 200 b/d is managed on a separate contract at $13/bbl cost.

2. Base decline is about 12% p.a. So on 2,000 bopd, and new wells delivering 35-150 bopd, you'd need 2-4 new wells to stand still, production-wise (and given the low statistical likelihood of 4 poor ones, probably 3 max). Plans are to drill 15-20 wells per year for the next 3 years, with locations identified

3. Cash in early Sept was $10MM, and they were pulling in just under $2 MM/mth.

4. Plans are to drill 2 exploration wells in 2019 - Corosan (gas, which could be connected into Shell's facilities which have ullage), and Balata, which is oil, and would probably need a frac at some stage. He sees this as low risk exploration, as they plan to "twin" these wells with the old tested exploration wells

Cost is $4-$5MM/well, but given the cash and revenue generation, the plan is to weave these into the ongoing program.

Program to start with Corosan in 2Q 2019

5. Supplementary petroleum tax (SPT) is 18% of revenue if oil price is over $50/bbl. But SPT can be offset against 25% of capital cost. TXP, as by far the most active driller in 2018, therefore can potentially offset all its SPT against drillex, unlike say TRIN

6. Hard to hear the last question on debt, but he sounded comfortable with debt on the balance sheet, keeping it rolling forward like RBL, as long as it's under a year's cash flow. So no plans to pay any off soon


Hope that's helpful - if anyone has any other observations or I've not got something correct, that would be helpful to hear