Touchstone Exploration Share Discussion Threads

[lazarus2010] 05/11/2015 11:13

JB should be able to answer that one...but basically I think you are correct with the $50 threshold, so yes from a Trin pov WTI is best under $50 or over $60. I would expect there to be some discussions behind the scenes with the T&T oil ministry as it is in the interests of T&T to maximise domestic production and minimise imports even if they lose a bit in tax revenues. The small gains to the govt from the tax are irrelevant compared with the necessity for the local companies to fund additional exploration and increase production. Maybe they will introduce a tiered tax rate to solve the issue?

[carpadium] 03/11/2015 18:44

I recall reading somewhere that the Supplementary Tax of 18% becomes due once wti hits $50, effectively reducing the income to $41 per barrel. In other words $50 won't be received by TXP until wti over $60 a barrel.

Can this be right, must we hope that wti stays at $49.99 rather than hovering around in the $50s?

[lazarus2010] 26/10/2015 08:00

Carp,

I received an email from TXP rep on Fri last week, he couldn't say much except that there will be a release of further details in the coming weeks regarding the metrics of the deal. Main area of focus are synergies and resulting cost savings due to the acquired blocks being very close to those already owned. Indications are that the deal will be very good...of course he would say that, but by my reckoning if they can get a netback of minimum $5/bbl (after all opex, G&A and finance costs), and by the time they acquire the asset say they are doing only 1400bopd, this would mean c. $200,000 pcm additional net revenue.

While wti is below $50, there will be no special oil tax to pay, only tax on profits.

Could be worth topping up while C$ still weak and oil prices are low

[lazarus2010] 22/10/2015 11:31

JB, looking at the timing of the deal, if they have valued the assets commensurate with $45 oil then TXP will have bought pretty close to the bottom...ok we have seen $38 oil earlier this year and we might get close to that again, but from a longer term perspective looking at oil price cycles, this should be earnings and asset value accretive.

It would also be interesting to know when TXP take control of the cash flow from the project...is it immediately after the payment of the $2mln advance, or only after the transaction completes ie early 2016?

[jamesiebabie] 21/10/2015 18:15

Laz - at the current PoO we don't have to pay the one tax, so our cashflow should be okay; once the PoO gets above $50, then it becomes more difficult. As I said, maybe the Trin govt will change the tax laws for onshore assets and make things a bit easier. The Trin govt cannot be happy at this level.

I'm never one for debt, but if they are making an informed decision at this level, then they must think there is some upside. TXP have been quite cute recently imho.

[lazarus2010] 21/10/2015 14:31

JB, when I saw the field names I though they must be pretty close to the ones held by TXP, now confirmed by their press release. If they can reduce a significant number of operational staff for the acquired assets and all management of the assets will be carried out by existing in house team, then the synergies mentioned should be substantial. Must admit I don't like the additional bank borrowing that will need to be taken out, cash flow is king and the banks always need to be paid first!

[jamesiebabie] 21/10/2015 14:10

TXP's view: No dilution, yet and may not be.

[lazarus2010] 21/10/2015 10:07

Trin has doubled this morning! Clearly they just received a 'get out of jail card' courtesy of TXP!

[lazarus2010] 21/10/2015 09:20

JB, one would expect that TXP see this as earnings accretive even at the current low WTI prices! I would not expect them to pay so much for a loss making asset as that would be a pure gamble on the oil price recovering. Also the fact that there has not been any new drilling since H1 2014 means that apart from workovers the production will continue to decline, so they must have identified decent margins in spite of the price paid, to cover the lower revenues from the natural declines.

Additionally the figures for production quoted were end Aug 2015, so there must be a bit of a decline since then.

Although historically the price looks cheap, I just think that in the current market they have overpaid, and clearly Trin were desperate sellers and I wonder how many offers they might have had which resulted in TXP paying so much.

[jamesiebabie] 21/10/2015 08:59

Laz - most recent update.

Onshore operations

Average H1 2015 net production for Onshore was 1,691 boepd (H1 2014: 2,088 boepd). The decrease in production volumes resulted from natural decline rates coupled with minimal workover activity. There were 43 workovers conducted in H1, with the rate of workovers limited by having only two rigs operational on the fields (versus the three previously operational for the same period last year). Due to lower oil prices new drilling operations have been
suspended since the close of H1 2014 and this has remained in effect. One RCP was completed in H1 2015 yielding an initial production rate of 104 boepd partially offsetting the decline in production.

West Coast operations

Average H1 2015 net production from the West Coast assets was 384 boepd (H1 2014: 580 boepd). No drilling or RCPs were carried out in H1 2015 and there were minimal workover activities. The shortfall in West Coast production levels
was largely due to the temporary shut-in of the ABM-151 well (now back on production) and compressor overhaul work at Brighton. At the Guapo Marine block chemical treatment of some of the more viscous wells has been deferred.

East Coast operations

At TGAL (TRIN: 65% WI), where management resource estimates on Trinity's TGAL-1 discovery are 150.0 - 210.0 mmbbls (best estimate 186.0 mmbbls), work continues on the Field Development Plan with submission expected during H2 2015. The subsurface evaluation has been completed, the topside facility concept has been narrowed down to two options and it seems practical to adopt a phased approach to developing the field by bringing onto production the reserves nearer to the Trintes field and putting it through a Trintes facility to shore. Seventeen candidate drilling locations have been identified with the potential to develop 22.0 mmbbls following development. The initial revenues generated would then allow for reinvestment in other facilities and pipeline.

[jamesiebabie] 21/10/2015 08:55

Carp - re the FTG, they did not participate straight away. I am aware that they looked at some data but it has not been disclosed to date whether or not they have eventually bought the data or some of it.

[jamesiebabie] 21/10/2015 08:52

Laz - I also believe the Chairman was buying a lot of shares; I wonder why?

Laz - here's another extract from a relatively recent report; it has cost TRIN a lot.

OPERATIONS REVIEW

Onshore operations

Average H1 2014 net production for onshore was 2,088 bopd (H1 2013: 1,997 bopd). The increase in production volumes resulted from the five wells which were drilled and completed in H2 2013. Trinity suspended drilling operations during the first half of 2014 while discussions were ongoing with Petrotrin regarding upgrading the Company's licenses to improve efficiency, reduce operating costs and assess enhanced oil recovery opportunities on the combined acreage. External approvals have been secured for six new infill wells with an additional six infill well locations currently going through an approval process.

West Coast operations

Average H1 2014 net production from the West Coast assets was 580 boepd (H1 2013: 452 boepd). Increased workover and recompletion activity on the PGB block led to the positive increase in production volumes compared to previous period. Whilst at the same time there was a focus on remedial work following production challenges at the ABM-151 well and the MP-8 platform and gas lift optimisation at the Brighton field.

East Coast operations

Average H1 2014 net production from the Trintes field was 1,127 bopd (H1 2013: 1,075 bopd). The incremental production is attributable to the conversion of the Trintes field from a joint operating agreement to an overriding royalty agreement in H2 2013, which meant Trinity benefitted from 100% of the production volumes as opposed to 65%. Production during Q2 2014 was impacted by the failure of the D-9 electric submersible pump (“ESP”) which contributed to a loss of 230 bopd. The D-9 ESP was replaced in late June 2014 and production restored to its previous level.

The B-9X infill well was drilled during H1 2014. The production test from the O-sand indicated that the completion interval was gas bearing. Technical work is being conducted to evaluate the full potential of the lower O-sand oil lobe and evaluate options for testing this interval. To accelerate production from the B-9X well, the O-sand interval has been temporarily isolated to allow a completion in the M-sand. The B-9X well encountered 85 feet of net oil sand in the M-sand and the original water contact for the fault block. The estimated initial production ("IP") rate for the M-sand completion is 75 to 130 bopd, however, due to encountering the original water contact in the fault block, the potential exists for a higher IP rate.

Exploration update

The Trinity operated El Dorado-1 exploration well was spudded on 6 December 2013, and reached total depth (“TD”) on 5 February 2014 utilising the WS-152 jackup rig. The primary objective of the well was to test an undrilled fault block on the west flank of the Trinity operated Brighton field.
The well was drilled to a total depth of 6,174 feet measured depth ("MD") and intersected a shallow gas sand in the Pliocene section and marginal thin bedded oil pay in the Miocene section. In aggregate approximately 13 feet of net oil sands and 32 feet of net gas sands were encountered, however these were not deemed commercial and the well was plugged and abandoned with USD 17.5 million in costs written off during the period.

[carpadium] 21/10/2015 08:48

LGO carried out the first ever FTG survey of onshore (and offshore) Trinidad and offered this info for sale to interested parties.

Didn't I read Touchstone elected to buy this info?

Could they have seen significant upside to TRIN's properties?

[jamesiebabie] 21/10/2015 08:40

Laz - TXP will not have bought the assets unless there was some significant upside. I do wonder if there may have been some negotiations with the TRIN government to get the tax regime changed for the onshore production. Time will tell, but the Trinidad government will have to listen as we become one the largest land holders and producers.

Let's wait to see what TXP have to say.

[jamesiebabie] 21/10/2015 08:29

Here's another useful presentation; TRIN have spent quite a bit of cash and I think we're about to see the benefit.

[johnsmithmmxiii] 21/10/2015 08:27

Yep, I get the feeling TXP have been taken to the cleaners on this unless they know something that we don't!

Being positive, it's quite a low price per flowing barrel, and if contingent resources are converted to P2 then it's about $4-5/BBL, which is below historic finding costs.

[jamesiebabie] 21/10/2015 08:26

Maybe we are about to sell our offshore East Brighton acreage?

[jamesiebabie] 21/10/2015 08:22

Carp - :0)

Laz - Onshore reserves for TRIN:

2P - 2.1M
Contigent - 2.8M

[carpadium] 21/10/2015 08:09

Jb, if they're taking your advice could you please ask them to re-drill LGO's 678
and go halves on the output. tia o:)

[jamesiebabie] 21/10/2015 08:01

Laz - we also have the loan facility, if it can be implemented.

Back in April I mentioned to TXP about buying TRIN's assets.

[johnsmithmmxiii] 21/10/2015 07:53

Carp, I was thinking the same, we have had 3 asset sales already this year, maybe they will try and exit Canada completely?

[carpadium] 21/10/2015 07:50

More Canadian asset sales to come?

[jamesiebabie] 21/10/2015 07:46

Laz - I'm expecting some dilution here, but at what cost? Drilling would cost c. $30M in my opinion to get a 'stable' 1500boepd.

TXP were over here last month, I am led to believe.

[johnsmithmmxiii] 21/10/2015 07:37

Looking at the current market cap of TXP, C. £16.6 mln according to advfn site, and has c. 1700boepd, so they have paid about 80% of the entire market cap for about 80% of current production. However the current market cap must also include some value for the existing reserves. I can't see how this is a good price for this asset, especially when Trin reported they made losses over the 8 month period to 31.08 of $2.30mln.

On a positive side, how much would TXP need to spend in drilling costs in order to achieve 1500bopd? Assuming there will be cost savings from G&A expenses, and that TXP management know what they're doing, surely they must be thinking they can make this an earnings accretive acquisition even at $45 wti?

Total production of the company should now be in excess of 3000boepd.

How will the markets react? Sp dropped last night in Canada but no news was released afaiaa.

I am assuming they will borrow the cash for this acquisition rather than a placing so the value of the asset will be offset by additional debt?

[johnsmithmmxiii] 21/10/2015 07:25

Fk!!!

Txp paying $20.8 mln for Trin assets...is this a good or bad deal? c.1500bopd, but no comment re Pl Or P2 reserves.