REG - Touchstone Explrtn. - Annual 2025 Financial and Operating Results
31/03/2026 07:00
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RNS Number : 8153Y Touchstone Exploration Inc. 31 March 2026
ANNUAL 2025 FINANCIAL AND OPERATING RESULTS
CALGARY, ALBERTA (March 31, 2026) - Touchstone Exploration Inc. ("Touchstone",
"we", "our" or the "Company") (TSX, LSE: TXP) reports its operating and
condensed financial results for the three months and year ended December 31,
2025. Selected financial information is outlined below and should be read in
conjunction with Touchstone's December 31, 2025 audited consolidated financial
statements and related Management's discussion and analysis, both of which are
available on the Company's profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and website (www.touchstoneexploration.com
(http://www.touchstoneexploration.com/) ). Unless otherwise stated, all
financial amounts presented herein are in United States dollars, and all
production volumes disclosed herein are sales volumes based on Company working
interest before royalty burdens.
Fourth Quarter 2025 Financial and Operating Highlights
· Production: Averaged 4,877 boe/d (71% natural gas) in Q4 2025, an 8%
decrease from 5,287 boe/d (73% natural gas) in Q4 2024. The Central field
contributed 2,065 boe/d, highlighting its significant contribution to the
portfolio since its acquisition.
· Revenue: Petroleum and natural gas sales totaled $11.0 million, a
19% decrease from $13.54 million in Q4 2024, primarily due to lower production
and softened realized pricing.
- Crude oil sales: $5.0 million from average production of 996 bbls/d
at an average realized price of $54.57 per barrel.
- NGL sales: $1.15 million from average production volumes of 413
bbls/d at an average realized price of $30.30 per barrel.
- Natural gas sales: $4.85 million from average production of 20.8
MMcf/d (3,468 boe/d) at an average realized price of $2.54 per Mcf.
· Operating netback: Generated $4.22 million, a 39% decrease
year-over-year, impacted by lower petroleum and natural gas sales and
increased natural gas operating expenses.
· Funds flow from operations: Totaled $0.62 million, compared to
$3.61 million in Q4 2024. The decline was driven by lower operating netbacks
and higher cash finance expenses, partially offset by reduced general and
administration expenses.
· Net income: Reported $13.62 million ($0.04 per share), compared to a
net loss of $0.54 million in Q4 2024. The increase was primarily non-cash,
driven by a $9.55 million deferred tax recovery and a $4.98 million gain on
asset dispositions.
· Capital investments: Invested $7.44 million, focused on drilling the
CR-3 development well on the Central property.
· Financial position: Net debt decreased to $72.89 million from $77.75
million at September 30, 2025, supported by $8.37 million in net proceeds from
a private placement.
Annual 2025 Financial and Operating Highlights
· Health and safety: Achieved a safety milestone with zero
lost-time injuries recorded throughout 2025.
· Strategic acquisition: Completed the acquisition of Shell Trinidad
Central Block Limited on May 16, 2025. The asset contributed an average of
2,095 boe/d of liquids-rich natural gas since closing and provides critical
exposure to global LNG pricing.
· Annual production: Averaged 4,686 boe/d, an 18% decrease from 5,734
boe/d in 2024. Incremental production from the Central block partially
mitigated natural declines at Cascadura and mature crude oil fields.
· Financial performance:
- Revenue: Petroleum and natural gas sales totaled $45.82 million,
down 20% from $57.47 million in 2024, primarily attributable to lower natural
gas production volumes and decreased crude oil and liquids realized prices.
- Operating netback: Generated $21.26 million ($12.44 per boe),
compared to $32.89 million ($15.68 per boe) in 2024.
- Funds flow from operations: Reported $5.37 million, a 68%
year-over-year decrease from $16.75 million in 2024.
- Net income: Realized $10.89 million ($0.04 per share), compared to
$8.27 million ($0.04 per basic share and $0.03 per diluted share) in 2024,
reflecting a $4.98 million gain on asset disposition and a $12.61 million
deferred income tax recovery recorded in 2025.
· Capital program: Executed a $28.38 million capital program, pivoting
from infrastructure build out to active drilling, including three gross (2.25
net) development wells.
· Strategic portfolio rationalization: Divested the non-core Fyzabad
property. Consideration included three turnkey drilling wells on the Company's
WD-8 and WD-4 blocks, aligning with our strategy to focus on higher-return
core assets.
· Financing and liquidity:
- Bank debt: Obtained an additional $30 million term loan facility to
finance the Central block acquisition.
- Convertible debt: Issued a $12.5 million three-year secured
convertible debenture to fund the completion of the 2025 Cascadura drilling
program.
- Private placements: Raised an aggregate of $13.6 million in net
proceeds through two equity placements in 2025.
2025 Financial and Operating Results Overview
Three months ended December 31, % change((4)) Year ended December 31, % change((4))
2025 2024 2025 2024
Operational
Average daily production
Crude oil((1)) (bbls/d) 996 1,310 (24) 1,087 1,220 (11)
NGLs((1)) (bbls/d) 413 121 100 276 132 100
Crude oil and liquids((1)) (bbls/d) 1,409 1,431 (2) 1,363 1,352 1
Natural gas((1)) (Mcf/d) 20,805 23,136 (10) 19,939 26,290 (24)
Average daily production (boe/d)((2)) 4,877 5,287 (8) 4,686 5,734 (18)
Production mix (% of production)
Crude oil and liquids((1)) 29 27 29 24
Natural gas((1)) 71 73 71 76
Average realized prices((3))
Crude oil((1)) ($/bbl) 54.57 62.50 (13) 59.45 67.91 (12)
NGLs((1)) ($/bbl) 30.30 62.05 (51) 33.67 69.10 (51)
Crude oil and liquids((1)) ($/bbl) 47.46 62.47 (24) 54.24 68.03 (20)
Natural gas((1)) ($/Mcf) 2.54 2.50 2 2.59 2.48 4
Realized commodity price ($/boe)((2)) 24.53 27.85 (12) 26.79 27.39 (2)
Operating netback ($/boe)((2))
Realized commodity price((3)) 24.53 27.85 (12) 26.79 27.39 (2)
Royalty expense((3)) (7.15) (6.59) 8 (6.73) (6.61) 2
Operating expense((3)) (7.97) (7.09) 12 (7.62) (5.10) 49
Operating netback((3)) 9.41 14.17 (34) 12.44 15.68 (21)
Financial
($000's except per share amounts)
Petroleum and natural gas sales 11,001 13,543 (19) 45,817 57,470 (20)
Cash from operating activities 9,903 822 100 20,130 13,181 53
Funds flow from operations 623 3,614 (83) 5,371 16,748 (68)
Net income (loss) 13,621 (542) n/a 10,888 8,272 32
Per share - basic 0.04 (0.00) n/a 0.04 0.04 -
Per share - diluted 0.04 (0.00) n/a 0.04 0.03 33
Capital expenditures((3)) 7,443 3,106 100 28,377 23,679 20
Acquisition expenditures - - n/a 28,400 - n/a
Principal balance of bank debt 57,750 35,000 65
Principal balance of convertible debenture 12,500 - n/a
Net debt((3)) 72,890 29,109 100
Share Information (000's)
Weighted avg. shares outstanding:
Basic 304,674 236,461 29 262,969 235,509 12
Diluted 304,674 236,461 29 262,969 236,492 11
Outstanding shares - end of period 324,734 236,461 37
Notes:
(1) Refer to "Advisories - Product Type Disclosures" for further
information.
(2) In the table above and elsewhere in this announcement, references to
"boe" mean barrels of oil equivalent that are calculated using the energy
equivalent conversion method. Refer to "Advisories - Oil and Natural Gas
Measures" for further information.
(3) Specified or supplementary financial measure. Refer to "Advisories -
Non-GAAP Financial Measures" for further information.
(4) Percentages have been rounded to the nearest whole number and are
limited to increases or decreases of 100 percent.
Liquidity and Going Concern
Management continues to closely monitor the Company's liquidity position to
ensure that operating cash flows and working capital remain sufficient to
support ongoing financial obligations, planned capital programs, and future
work commitments.
The Company's audited consolidated financial statements for the year ended
December 31, 2025 include a note regarding the existence of material
uncertainties over its ability to continue as a going concern. As at December
31, 2025, the Company had a working capital deficit of $15.4 million,
excluding the convertible debenture maturing in 2028. Additionally, the
Company currently projects a breach of its bank debt net senior funded debt to
trailing annual EBIDA and debt service coverage covenants as of December 31,
2026, which could result in the bank debt becoming due at that time.
Management is actively focused on several initiatives to bolster liquidity and
address these uncertainties:
· Operational cash flow: Realizing anticipated production growth from
the 2025 and 2026 drilling programs and benefiting from strengthening
commodity pricing.
· Value-added tax receivables: Monitoring and accelerating the
collection of outstanding value-added tax receivables.
· Capital management: Maintaining active engagement with its lender
regarding potential amendments to the loan agreement or obtaining waivers for
the projected 2026 covenant breaches.
In the absence of mitigating actions, the Company's current cash resources may
not be sufficient to fund expected operating and development expenditures and
scheduled bank debt repayments over the next twelve months. Should these
conditions persist, the Company is actively evaluating and is prepared to
implement contingency measures, including optimizing capital expenditures or
seeking additional debt or equity financing to ensure ongoing obligations are
met.
2025 Annual Filings
Touchstone has filed its annual audited financial statements, along with the
related Management's discussion and analysis and annual information form
("AIF") for the financial year ended December 31, 2025. The AIF includes
reserves data and other oil and gas disclosures in compliance with National
Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI
51-101"). The reserves information presented in the AIF is consistent with the
details disclosed in Touchstone's announcement issued February 25, 2026. These
documents are available on the Company's profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and website (www.touchstoneexploration.com
(http://www.touchstoneexploration.com/) ).
Touchstone Exploration Inc.
Touchstone Exploration Inc. is a Calgary, Alberta based company engaged in the
business of acquiring interests in petroleum and natural gas rights and the
exploration, development, production and sale of petroleum and natural gas.
Touchstone is currently active in onshore properties located in the Republic
of Trinidad and Tobago. The Company's common shares are traded on the Toronto
Stock Exchange and the AIM market of the London Stock Exchange under the
symbol "TXP". For further information about Touchstone, please visit our
website at www.touchstoneexploration.com
(http://www.touchstoneexploration.com/) or contact:
Touchstone Exploration Inc.
Paul R. Baay, President and Chief Executive Officer
Tel: +1 (403) 750-4487
Scott Budau, Chief Financial Officer
Brian Hollingshead, EVP Engineering and Business Development
Canaccord Genuity (Nominated Advisor and Joint Broker)
Adam James / Charlie
Hammond
Tel: +44 (0) 207 523 8000
Cavendish Capital Markets Limited (Joint Broker)
Neil McDonald / Derrick Lee / Graham
Hall
Tel: +44 (0) 131 220 6939
FTI Consulting (Financial PR)
Nick Hennis / Ben Brewerton
Tel: +44 (0) 203 727 1000
Email: touchstone@fticonsulting.com
(mailto:touchstone@fticonsulting.com)
Advisories
Certain information contained in this announcement would have been deemed
inside information as stipulated under the UK version of the EU Market Abuse
Regulation (2014/596) which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018, as amended and supplemented from time to time, until
the release of this announcement.
Forward-looking Statements
The information provided in this announcement contains certain forward-looking
statements and information (collectively, "forward-looking statements") within
the meaning of applicable securities laws. Such forward-looking statements
include, without limitation, forecasts, estimates, expectations and objectives
for future operations that are subject to assumptions, risks and
uncertainties, many of which are beyond the control of the Company.
Forward-looking statements are statements that are not historical facts and
are generally, but not always, identified by the words "expect", "believe",
"estimate", "potential", "anticipate", "forecast", "pursue", "aim", "intends",
and similar expressions, or are events or conditions that "will", "would",
"may", "could" or "should" occur or be achieved. The forward-looking
statements contained in this announcement speak only as of the date hereof and
are expressly qualified by this cautionary statement.
Specifically, this announcement includes, but is not limited to,
forward-looking statements relating to: the Company's business plans,
strategies, priorities and development plans; anticipated developmental
drilling and facility upgrade activities, including locations, the timing
thereof and related production and cash flows therefrom; the Company's
expectation of improved commodity pricing market fundamentals and the benefits
to be derived therefrom; the Company's expectations of accelerating the
collection of VAT; the Company's ability to amend its current loan agreement
and/or obtain future waivers for projected financial covenant breaches; and
Touchstone's current and future financial position, including the Company's
liquidity and the sufficiency of resources to fund current obligations future
capital expenditures. The Company's actual decisions, activities, results,
performance, or achievement could differ materially from those expressed in,
or implied by, such forward-looking statements and accordingly, no assurances
can be given that any of the events anticipated by the forward-looking
statements will transpire or occur or, if any of them do, what benefits that
Touchstone will derive from them.
Although the Company believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance should
not be placed on the forward-looking statements because the Company can give
no assurance that they will prove to be correct. Since forward-looking
statements address future events and conditions, by their very nature they
involve inherent risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors and
risks. Certain of these risks are set out in more detail in the Company's 2025
Annual Information Form dated March 30, 2026 which is available on the
Company's profile on SEDAR+ (www.sedarplus.ca (http://www.sedarplus.ca/) ) and
website (www.touchstoneexploration.com (http://www.touchstoneexploration.com/)
). The forward-looking statements contained in this announcement are made as
of the date hereof, and except as may be required by applicable securities
laws, the Company assumes no obligation or intent to update publicly or revise
any forward-looking statements made herein or otherwise, whether as a result
of new information, future events or otherwise.
Non-GAAP Financial Measures
This announcement references various non-GAAP financial measures, non-GAAP
ratios, capital management measures and supplementary financial measures as
such terms are defined in National Instrument 52-112 Non-GAAP and Other
Financial Measures Disclosure. Such measures are not recognized measures under
Canadian Generally Accepted Accounting Principles ("GAAP") and do not have a
standardized meaning prescribed by IFRS Accounting Standards as Issued by the
International Accounting Standards Board ("IFRS") and therefore may not be
comparable to similar financial measures disclosed by other issuers. Readers
are cautioned that the non-GAAP financial measures referred to herein should
not be construed as alternatives to, or more meaningful than, measures
prescribed by IFRS, and they are not meant to enhance the Company's reported
financial performance or position. These are complementary measures that are
commonly used in the oil and natural gas industry and by the Company to
provide shareholders and potential investors with additional information
regarding the Company's performance. Below is a description of the non-GAAP
financial measures, non-GAAP ratios, capital management measures and
supplementary financial measures disclosed herein.
Operating netback
Touchstone uses operating netback as a key performance indicator of field
results. The Company considers operating netback to be a key measure as it
demonstrates Touchstone's profitability relative to current commodity prices
and assists Management and investors with evaluating operating results on a
historical basis. Operating netback is a non-GAAP financial measure calculated
by deducting royalty and operating expenses from petroleum and natural gas
sales. The most directly comparable financial measure to operating netback
disclosed in the Company's consolidated financial statements is petroleum and
natural gas revenue net of royalties. Operating netback per boe is a non-GAAP
ratio calculated by dividing the operating netback by total production volumes
for the period. Presenting operating netback on a per boe basis allows
Management to better analyze performance against prior periods on a comparable
basis.
Capital expenditures
Capital expenditures is a non-GAAP financial measure that is calculated as the
sum of exploration and evaluation asset expenditures and property, plant and
equipment expenditures included in the Company's consolidated statements of
cash flows and is most directly comparable to cash used in investing
activities. Touchstone considers capital expenditures to be a useful measure
of its investment in its existing asset base.
Working capital and net debt
Working capital and net debt are capital management measures used by
Management to monitor the Company's capital structure to evaluate its true
debt and liquidity position and to manage capital and liquidity risk.
Working capital is calculated as current assets minus current liabilities as
presented in the applicable consolidated balance sheet, excluding the carrying
value of the convertible debenture. Management excludes the carrying value of
the convertible debenture from working capital given the instrument has a
maturity date in 2028.
Net debt is determined by adding the Company's working capital surplus or
deficit to the principal (undiscounted) balance of non-current bank debt and
the principal (undiscounted) balance of the convertible debenture. Net debt is
most directly comparable to total liabilities as disclosed in the Company's
consolidated balance sheets.
Supplementary Financial Measures
Realized commodity price per boe - is comprised of petroleum and natural gas
sales as determined in accordance with IFRS, divided by the Company's total
production volumes for the period.
Realized crude oil sales per barrel, realized NGL sales per barrel and
realized natural gas sales per boe - are comprised of sales from the
respective product type as determined in accordance with IFRS, divided by the
Company's total production volumes of the respective product type for the
period. Crude oil sales, NGL sales and natural gas sales are components of
petroleum and natural gas sales as disclosed on the consolidated statements of
comprehensive income.
Realized crude oil and liquids sales per barrel - is comprised of the sum of
crude oil and NGL product sales as determined in accordance with IFRS, divided
by the sum of the Company's total crude oil and NGL production volumes for the
period. Crude oil and NGL sales are components of petroleum and natural gas
sales.
Royalty expense per boe - is comprised of royalty expense as determined in
accordance with IFRS, divided by the Company's total production volumes for
the period.
For further information, please refer to the "Advisories - Non-GAAP Financial
Measures" section of the Company's most recent Management's discussion and
analysis for the three months and year ended December 31, 2025 accompanying
the December 31, 2025 audited consolidated financial statements, both of which
are available on the Company's profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and website (www.touchstoneexploration.com
(http://www.touchstoneexploration.com/) ). Touchstone's Management's
discussion and analysis is incorporated by reference herein and includes
further discussion of the purpose and composition of the specified non-GAAP
financial measures consistently used by the Company and detailed
reconciliations to the most directly comparable GAAP measures.
Oil and Natural Gas Measures
To provide a single unit of production for analytical purposes, natural gas
production has been converted mathematically to barrels of oil equivalent. The
Company uses the industry-accepted standard conversion of six thousand cubic
feet of natural gas to one barrel of oil (6 Mcf = 1 bbl). The 6:1 boe ratio is
based on an energy equivalent conversion method primarily applicable at the
burner tip. It does not represent a value equivalency at the wellhead and is
not based on either energy content or current prices. While the boe ratio is
useful for comparative measures and observing trends, it does not accurately
reflect individual product values and may be misleading, particularly if used
in isolation, as the value ratio between crude oil and natural gas based on
current commodity prices may differ significantly from the 6:1 energy
equivalency ratio.
Product Type Disclosures
This announcement includes references to crude oil, NGLs, crude oil and
liquids, natural gas average daily production volumes. Under NI 51-101,
disclosure of production volumes should include segmentation by product type
as defined in the instrument. In this announcement, references to "crude oil"
refer to light and medium crude oil and heavy crude oil; references to "NGLs"
refer to condensate and propane; and references to "natural gas" refer to
conventional natural gas, all as defined in the instrument. References to
"crude oil and liquids" include crude oil and NGLs.
For further information regarding specific product disclosures in accordance
with NI 51-101, including 2025 and 2024 total and average production
information by product type, please refer to the "Advisories - Product Type
Disclosures" section of the Company's most recent Management's discussion and
analysis for the three months and year ended December 31, 2025 accompanying
the December 31, 2025 audited consolidated financial statements, both of which
are available on the Company's profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and website (www.touchstoneexploration.com
(http://www.touchstoneexploration.com/) ).
Abbreviations
The following abbreviations may be referenced in this announcement:
bbl(s) barrel(s)
bbls/d barrels per day
boe barrels of oil equivalent
boe/d barrels of oil equivalent per day
Mcf thousand cubic feet
Mcf/d thousand cubic feet per day
MMcf million cubic feet
MMcf/d million cubic feet per day
LNG liquefied natural gas
NGL(s) natural gas liquid(s)
Touchstone Exploration Inc.
Consolidated Balance Sheets
Stated in thousands of United States dollars
As at Note December 31, December 31, 2024
2025
Assets
Current assets
Cash 10,370 6,744
Accounts receivable 6 28,169 13,805
Inventory 82 85
Prepaid expenses 904 1,517
39,525 22,151
Exploration and evaluation assets 8 5,571 3,743
Property, plant and equipment 9 181,677 122,382
Restricted cash 13 3,602 924
Other assets 9 2,224 108
Abandonment fund 15 9,478 2,965
Total assets 242,077 152,273
Liabilities
Current liabilities
Accounts payable and accrued liabilities 11 32,891 16,254
Acquisition consideration payable 7 8,525 -
Income taxes payable 21 749 6
Current portion of bank debt 13 12,786 7,250
Convertible debenture 14 9,979 -
64,930 23,510
Lease liabilities 12 2,982 4,368
Bank debt 13 44,685 27,541
Decommissioning liabilities 15 12,081 9,985
Share-based compensation liabilities 20 126 117
Deferred income taxes 21 23,605 17,924
Total liabilities 148,409 83,445
Shareholders' equity
Shareholders' capital 16 129,205 115,610
Warrants 269 -
Contributed surplus 7,315 7,069
Other comprehensive loss (14,040) (13,882)
Deficit (29,081) (39,969)
Total shareholders' equity 93,668 68,828
Total liabilities and shareholders' equity 242,077 152,273
Going concern (Note 1)
Commitments and contingencies (Note 24)
See accompanying notes to these consolidated financial statements.
Approved on behalf of the Board of Directors:
(signed) "Kenneth R.
McKinnon"
(signed) "Stanley T. Smith"
Kenneth R.
McKinnon
Stanley T. Smith
Chair of the Board of Directors and
Director Chair of the
Audit Committee and Director
Touchstone Exploration Inc.
Consolidated Statements of Comprehensive Income
Stated in thousands of United States dollars (except per share amounts)
Year ended December 31,
Note 2025 2024
Revenue
Petroleum and natural gas sales 17 45,817 57,470
Less: royalties (11,516) (13,876)
Petroleum and natural gas sales, net of royalties 34,301 43,594
Other revenue 454 63
Total revenue 34,755 43,657
Expenses
Operating 26 13,037 10,704
General and administration 26 9,817 10,154
Net finance 18 3,902 3,018
Transaction 19 471 2,023
Exploration 58 248
Gain on asset dispositions 8,9 (4,981) (2,213)
Foreign exchange gain 22 (39) (54)
Share-based compensation 20 207 1,589
Depletion and depreciation 9 12,485 9,501
Impairment 10 - 2,659
Total expenses 34,957 37,629
(Loss) income before income taxes (202) 6,028
Provision for income taxes
Current expense 21 1,522 1,161
Deferred recovery 21 (12,612) (3,405)
Total income tax recovery (11,090) (2,244)
Net income 10,888 8,272
Currency translation adjustments (158) (758)
Comprehensive income 10,730 7,514
Net income per common share
Basic 16 0.04 0.04
Diluted 16 0.04 0.03
See accompanying notes to these consolidated financial statements.
Touchstone Exploration Inc.
Consolidated Statements of Changes in Shareholders' Equity
Stated in thousands of United States dollars
Year ended December 31,
Note 2025 2024
Shareholders' capital
Balance, beginning of year 115,610 114,965
Issued pursuant to private placement, net of fees 16 13,595 -
Issued under share-based compensation plans 16 - 645
Balance, end of year 129,205 115,610
Warrants
Balance, beginning of year - -
Issued pursuant to convertible debenture 14 269 -
Balance, end of year 269 -
Contributed surplus
Balance, beginning of year 7,069 6,166
Recognized under share-based compensation plans 16 - (230)
Share-based compensation expense 20 224 1,061
Share-based compensation capitalized 20 22 72
Balance, end of year 7,315 7,069
Other comprehensive loss
Balance, beginning of year (13,882) (13,124)
Currency translation adjustments (158) (758)
Balance, end of year (14,040) (13,882)
Deficit
Balance, beginning of year (39,969) (48,241)
Net income 10,888 8,272
Balance, end of year (29,081) (39,969)
See accompanying notes to these consolidated financial statements
Touchstone Exploration Inc.
Consolidated Statements of Cash Flows
Stated in thousands of United States dollars
Year ended December 31,
Note 2025 2024
Operating activities
Net income 10,888 8,272
Items not involving cash from operations:
Gain on asset dispositions 8,9 (4,981) (2,213)
Unrealized foreign exchange loss 22 72 121
Share-based compensation expense 20 207 1,589
Depletion and depreciation expense 9 12,485 9,501
Impairment expense 8,9 - 2,659
Non-cash finance (income) expense 26 (688) 243
Deferred income tax recovery 21 (12,612) (3,405)
Decommissioning expenditures 15 - (19)
Funds flow from operations 5,371 16,748
Net change in non-cash operating working capital 26 14,759 (3,567)
Cash from operating activities 20,130 13,181
Investing activities
Exploration and evaluation expenditures 8 (1,848) (1,046)
Property, plant and equipment expenditures 9 (26,529) (22,633)
Acquisition expenditures 7 (28,400) -
Abandonment fund expenditures 15 (591) (971)
Proceeds from asset dispositions 9 115 1,066
Net change in non-cash investing working capital 26 (2,299) 2,964
Cash used in investing activities (59,552) (20,620)
Financing activities
Changes in restricted cash 13 (2,678) (139)
Advances of bank debt, net of fees 13 29,423 12,747
Repayments of bank debt 13 (7,250) (6,000)
Net proceeds from convertible debenture 14 11,706 -
Net finance lease payments 12 (1,833) (1,194)
Issuance of common shares, net of fees 16 13,595 415
Net change in non-cash financing working capital 26 14 106
Cash from financing activities 42,977 5,935
Change in cash during the year 3,555 (1,504)
Cash, beginning of year 6,744 8,186
Impact of foreign exchange on foreign denominated cash balances 71 62
Cash, end of year 10,370 6,744
Supplementary information for cash from operating activities:
Interest paid in cash 13,14 3,771 2,407
Income taxes paid in cash 21 301 1,399
See accompanying notes to these consolidated financial statements.
1. Nature of Business
Touchstone Exploration Inc. and its subsidiaries (collectively, "Touchstone"
or the "Company") are engaged in the business of petroleum and natural gas
exploration, development, acquisition and production. The Company is currently
active in the Republic of Trinidad and Tobago ("Trinidad").
Touchstone Exploration Inc. is incorporated under the laws of Alberta, Canada
with its head and principal office located at 4100, 350 7(th) Avenue SW,
Calgary, Alberta, Canada T2P 3N9. Touchstone's common shares are listed on the
Toronto Stock Exchange ("TSX") and on the AIM market of the London Stock
Exchange ("AIM") under the symbol "TXP".
Going Concern
These consolidated financial statements have been prepared on a going concern
basis, which assumes the Company will continue in operational existence for
the foreseeable future and be able to realize its assets and discharge its
liabilities in the normal course of business.
As at December 31, 2025, the Company had a working capital deficit of $15.4
million, excluding the convertible debenture which is only convertible into
common shares of the Company at any time prior to maturity in August 2028. In
the absence of timely collection of value added tax receivables and
incremental production from its 2025 development well program, which
historically has experienced additional capital costs and operational
challenges impacting additional production, the Company expects that cash
balances may not be sufficient to fund projected operating and development
expenditures and required bank debt repayments of $12.8 million, included in
the working capital deficit, over the next twelve months. In addition, the
Company projects a breach of its bank debt net senior funded debt to trailing
annual EBIDA and debt service coverage covenants as of December 31, 2026,
which could result in the entire bank debt balance becoming due at that time.
These conditions indicate the existence of material uncertainties that may
cast significant doubt upon the Company's ability to continue as a going
concern.
The Company's ability to continue as a going concern is dependent upon
generating sufficient cash flows from operations, obtaining additional
financing through debt or equity, or restructuring existing debt obligations
and financial covenants. Management is actively evaluating alternatives to
meet the remaining capital requirements, including potential additional debt
or equity financing and adjustments to its operational and development plans.
These financial statements do not reflect potential adjustments to the
carrying amounts of assets and liabilities, reported amounts of revenue and
expenses, or balance sheet classifications that would be required if the going
concern assumption were deemed not appropriate. Such adjustments could be
material.
2. Basis of Preparation
These consolidated financial statements (the "financial statements") have been
prepared in accordance with IFRS Accounting Standards as issued by the
International Accounting Standards Board ("IFRS"). Unless otherwise stated,
all amounts presented in these financial statements are denominated in United
States dollars ("$" or "US$").
The financial statements have been prepared on a historical cost basis, except
for those items presented at fair value as detailed in the significant
accounting policies disclosed in Note 3 "Summary of Material Accounting
Policies".
The Company's operations are viewed as a single operating segment by the chief
operating decision makers of the Company for the purposes of resource
allocation and assessing performance.
The preparation of financial statements requires Management to use judgments,
estimates and assumptions that affect the reported amounts of assets,
liabilities, and the disclosure of contingencies at the date of the financial
statements, and revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimated. Significant
estimates and judgments used in the preparation of the financial statements
are detailed in Note 5 "Use of Estimates, Judgements and Assumptions".
These financial statements were approved and authorized for issuance by
Touchstone's Board of Directors (the "Board") on March 30, 2026.
3. Summary of Material Accounting Policies
The accounting policies set forth below have been applied consistently to all
periods presented in these financial statements by the Company and its
subsidiaries.
Basis of Consolidation
The financial statements include the accounts of Touchstone Exploration Inc.
and its wholly owned subsidiaries. The following table outlines the Company's
subsidiaries as at December 31, 2025.
Entity Country of incorporation Ownership (%)
Touchstone Exploration (Barbados) Ltd. Barbados 100
Touchstone Exploration (Trinidad) Ltd. Trinidad 100
Primera Oil and Gas Limited Trinidad 100
Territorial Oilfield Management Services Limited Trinidad 100
Touchstone Renewables Ltd. Trinidad 100
Effective December 12, 2025, the Company completed a simplified horizontal
amalgamation of its wholly owned subsidiaries, Touchstone Trinidad Central
Block Ltd. and Primera Oil and Gas Limited. Primera Oil and Gas Limited
continues as the surviving legal entity. Touchstone Trinidad Central Block
Ltd. (formerly Shell Trinidad Central Block Limited) was acquired by the
Company in May 2025 (refer to Note 7). This internal reorganization was
conducted to streamline the Company's Trinidadian legal and reporting
structure.
All intercompany balances, transactions, income and expenses have been
eliminated on consolidation in these financial statements.
Joint Arrangements
Touchstone conducts a significant portion of its petroleum and natural gas
("P&NG") activities through jointly controlled operations. Joint control
exists only when decisions about the relevant activities, such as the approval
of annual operating and capital budgets, require the unanimous consent of the
parties sharing control. These arrangements are classified as joint
operations, and accordingly, the financial statements reflect the Company's
specific share of the assets, liabilities, revenue, and expenses.
The Company's arrangements with state owned Heritage Petroleum Company Limited
("Heritage") are considered material jointly controlled arrangements:
· Ortoire block: The Company holds an 80 operating working
interest, with Heritage holding the remaining 20 percent interest.
· Central block: Following the acquisition in May 2025, the Company
holds a 65 percent operating working interest, with Heritage holding the
remaining 35 percent interest.
Because both parties must approve the strategic work programs and budgets for
these blocks, the Company has determined that joint control exists. Touchstone
recognizes its share of production, royalties, and operating expenses based on
these respective working interest percentages.
Foreign Currency Translation
The financial statements are presented in US$, which is the Company's
presentation currency.
Items included in the financial statements of each consolidated entity are
measured using the currency of the primary economic environment in which the
entity operates (the "functional currency"). Touchstone has determined that
the functional currency of the parent company is the Canadian dollar ("C$");
the functional currency of the Company's Barbadian entity is the US$; and the
functional currency of each of its Trinidadian subsidiaries is the Trinidad
and Tobago dollar ("TT$").
Foreign currency transactions are translated into the respective functional
currency of the Company and its subsidiaries using exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at
period-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the consolidated statements of
comprehensive income ("statements of income").
The results and financial position of the Company and its consolidated
subsidiaries that have a functional currency different from the US$
presentation currency are translated as follows:
· assets and liabilities for each consolidated balance sheet
("balance sheet") presented are translated at the reporting date closing rate;
· revenue and expenses and certain cash flow items for each period
are translated at average monthly exchange rates (unless this is not a
representative approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case revenue and expenses are translated at
the dates of the transactions); and
· all resulting exchange differences are recognized in other
comprehensive loss, a separate component of shareholders' equity.
Fair Value Measurement
Fair value represents the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants in the principal (or most advantageous) market at the measurement
date. All assets and liabilities measured or disclosed at fair value in these
financial statements are categorized within the following three-level fair
value hierarchy, which reflects the significance of the lowest level input
that is significant to the measurement as a whole.
· Level 1: Quoted prices in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
· Level 2: Inputs other than quoted prices included within Level 1
that are either directly or indirectly observable as of the reporting date.
Level 2 valuations are based on inputs that can be substantially observed or
corroborated in the marketplace, including quoted forward price for
commodities, time value, and volatility factors.
· Level 3: Inputs that are not based on observable market data.
At each reporting date, the Company assesses whether transfers have occurred
between levels of the hierarchy by reassessing the classification of each
financial asset and liability measured or disclosed at fair value. Judgement
is required in evaluating the significance of inputs used in determining fair
value, which may affect classification within the hierarchy.
Financial Instruments
Classification and measurement of financial instruments
The Company's financial assets and liabilities are classified into two
categories: amortized cost and fair value through profit or loss ("FVPTL").
The classification of financial assets is determined based on the
characteristics of their contractual cash flows. Touchstone does not classify
any of its financial instruments as fair value through other comprehensive
income.
Financial assets and liabilities are initially recognized at fair value, which
is generally equal to the transaction price, net of directly attributable
transaction costs, unless the instrument contains a significant financing
component. Subsequent measurement depends on the classification of the
financial instrument.
· Amortized cost: Financial instruments measured as amortized cost
are initially recognized at fair value and subsequently measured using the
effective interest method. Financial instruments classified as amortized cost
include accounts receivable, restricted cash, accounts payable and accrued
liabilities, acquisition consideration payable, income taxes payable, lease
liabilities and bank debt.
· FVPTL: Financial instruments classified as FVPTL are measured at
fair value on initial recognition and subsequently at fair value at each
reporting date, with changes in fair value recognized in the statements of
income. The Company's convertible debenture is classified as FVPTL.
Impairment of financial assets
The Company recognizes loss allowances for expected credit losses on its
financial assets measured at amortized cost. Expected credit losses exist if
one or more loss events occur after initial recognition of the financial
asset, which has an impact on the estimated future cash flows of the financial
asset and that impact can be reliably measured. Touchstone uses a combination
of historical and forward-looking information to determine the appropriate
expected credit loss. The carrying amount of the asset is reduced through the
use of an allowance account, and the loss is recognized in general and
administration expense.
Derecognition of financial liabilities
If an amendment to a contract or agreement comprises a substantial
modification, Touchstone will derecognize the existing financial liability and
recognize a new financial liability, with the difference recognized as a gain
or loss in the statements of income. To determine whether a modification is
substantial, the Company performs quantitative and qualitative tests.
Quantitatively, if the present value of the cash flows under the new terms is
at least 10 percent different than the remaining cash flows of the original
liability, the modification is deemed to be substantial. Qualitatively, the
change is evaluated based on its impact to the economic risk associated with
the liability and would be specific to the contract.
If the modification results in the derecognition of a liability, any
associated fees are recognized as part of the gain or loss. If the
modification is not deemed to be substantial, any associated fees are adjusted
against the liability's carrying amount and are amortized over the remaining
term.
Business Combinations
Touchstone accounts for business combinations using the acquisition method.
The cost of an acquisition is measured as the fair value of the assets given,
equity instruments issued, and liabilities incurred or assumed at the
acquisition date. Identifiable assets acquired and liabilities assumed are
measured and recognized at their fair value at the date of the acquisition,
with the exception of income taxes, right-of-use ("ROU") assets, and lease
liabilities. Any deferred income tax asset or liability arising from a
business combination is recognized at the acquisition date.
Transaction expenses associated with a business combination are expensed as
incurred. Results of acquisitions are included in the financial statements
from the closing date of the acquisition. If the consideration of the
acquisition is less than the fair value of the net assets received, the
difference is recognized immediately in the statements of income. If the
consideration of the acquisition is greater than the fair value of the net
assets received, the difference is recognized as goodwill on the balance
sheet. Subsequent measurement of goodwill is stated at cost less any
accumulated impairment expenses.
Exploration and Evaluation Assets
Expenditures incurred before the Company has obtained legal rights to explore
an area are recognized in the statements of income as exploration expense.
Exploration and evaluation ("E&E") assets reflect expenditures for an area
where technical feasibility and commercial viability have not yet been
determined. Expenditures, including land acquisition, geological and
geophysical, exploration drilling, completion and production testing costs,
directly attributable overhead and share-based compensation expenses, and
estimates of any decommissioning costs are capitalized and accumulated pending
determination of technical feasibility and commercial viability. Technical
feasibility and commercial viability of E&E assets are dependent upon the
assignment of a sufficient amount of economically recoverable crude oil,
natural gas liquids and natural gas reserves ("reserves") relative to the
estimated potential resources available, available infrastructure to support
commercial development, as well as obtaining the appropriate internal and
external approvals.
Assets classified as E&E may have sales of P&NG products associated
with production from test wells. Proceeds from the sale of P&NG products
during the E&E phase, and the related costs of producing those items, are
recognized in the statements of income.
When a project classified as E&E is determined to be technically feasible
and commercially viable, the relevant costs are transferred to property, plant
and equipment ("PP&E") on the balance sheet. The assets are assessed for
impairment prior to any such transfer, by comparing the carrying amount to the
greater of the assets' fair value less costs of disposal ("FVLCD") or value in
use ("VIU"). If a decision is made by Management not to continue an E&E
project, the E&E carrying value is derecognized and all associated costs
are expensed as impairment in the statements of income at that time.
Property, Plant and Equipment
Items of PP&E, which include P&NG development assets, ROU assets and
corporate assets, are measured at cost less accumulated depletion and
depreciation expense and accumulated impairment expense.
P&NG development asset costs include expenditures for areas where
technical feasibility and commercial viability have been determined. All costs
directly associated with the acquisition and development of P&NG
properties are capitalized. These costs include transfers of E&E assets,
property acquisitions, facilities, directly attributable overhead and
share-based compensation expenses, as well as decommissioning liabilities,
geological and geophysical, and drilling, completion and production testing
costs.
The Company depletes its P&NG development assets using the
unit-of-production method by reference to the ratio of production in the
period to the related proved plus probable reserves. Proved plus probable
reserves are estimated annually by independent qualified reserves evaluators
in accordance with National Instrument 51-101 Standards of Disclosure for Oil
and Gas Activities ("NI 51-101"). Estimated future development costs necessary
to bring the reserves to production are included in the depletion calculation.
The Company operates under numerous production and exploration leases with
varying expiry dates. Under its operating agreements with Heritage, the
Company does not have ownership of the reserves but is entitled to all
associated cash flows therefrom. For impairment assessment and depletion
purposes, the Company assumes that all relevant agreements will be renewed in
accordance with any contractual renewal options.
Depreciation of corporate assets are calculated on a declining balance basis
at various rates per annum over the estimated useful lives of the related
assets. Depreciation methods, useful lives and residual values are reviewed at
least annually.
Impairment of Non-financial Assets
Property, plant and equipment
P&NG development assets are accumulated in cost centres at the
cash-generating unit ("CGU") level for the purposes of assessing impairment. A
CGU is a grouping of assets that generate cash flows independently of other
assets held by the Company. CGUs are determined based on the smallest group of
assets that generate cash inflows that are largely independent of the cash
inflows from other assets, considering shared infrastructure and geography.
CGUs are reviewed at each reporting date for indicators of potential
impairment and, in the case of previously impaired CGUs, reversal of
impairment. If such indicators exist, an impairment test is performed by
comparing the CGU's carrying value to its recoverable amount, defined as the
greater of the CGU's FVLCD and its VIU. Any excess of the carrying value over
the estimated recoverable amount is recognized in the statements of income as
impairment expense.
If there is an indicator that a previously recognized impairment expense may
no longer exist or may have decreased, the estimated recoverable amount of the
relevant CGU is calculated and compared against the carrying amount. A
previous impairment expense is reversed to the extent that the CGU's estimated
recoverable amount does not exceed the carrying amount that would have been
determined, net of accumulated depletion, if no impairment had been
recognized. A reversal of impairment is recognized in the statements of income
against impairment expense.
FVLCD is estimated using the amount obtainable from the sale of the asset in
an arm's length transaction between knowledgeable and willing parties, less
any costs of disposal. Available fair value indicators, such as recent market
information and appropriately discounted cash flow valuation models, are
typically used in determining FVLCD. In assessing VIU, estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and risks
specific to the asset. Recoverable amounts are generally computed by reference
to the present value of the related future cash flows expected to be derived
from estimated proved plus probable reserves.
Exploration and evaluation assets
E&E assets are assessed for impairment at the operating area level and are
reviewed at each reporting date for indicators of potential impairment or, in
the case of previously impaired E&E assets, reversals of impairment. An
impairment expense on E&E assets is recognized if the carrying value of
the E&E assets exceeds the recoverable amount. Similarly, a previously
recorded impairment may be reversed if the recoverable amount of the relevant
E&E asset is greater than the carrying amount. E&E asset impairment
expenses or reversals are recognized in the statements of income as impairment
expense or impairment recovery, respectively.
Assets Held for Sale
Non-current assets are classified as held for sale if their carrying amounts
will be recovered through a sale transaction rather than through continuing
development or use. This condition is met when the sale is highly probable,
and the asset is available for immediate sale in its present condition. For
the sale to be highly probable, Management must be committed to a plan to sell
the asset, and an active program to locate a buyer must have been initiated.
The asset must be actively marketed for sale at a price that is reasonable in
relation to its current fair value, and the sale should be expected to be
completed within one year from the date of classification. Certain events or
circumstances beyond the Company's control may extend the period to complete
the sale beyond one year.
Immediately before E&E and PP&E assets are classified as held for
sale, they are measured at the lower of their carrying amount and FVLCD, with
any impairment expense recognized in the statements of income. Non-current
assets held for sale and their associated liabilities are classified and
presented in current assets and liabilities within the balance sheet. Assets
held for sale are not depleted or depreciated.
Dispositions
Gains or losses on disposal of assets are determined as the difference between
the net proceeds from disposal and the carrying amount of the net assets held
for sale and are recognized in the statements of income.
Exchanges of assets are measured at fair value, unless the transaction lacks
commercial substance or fair value cannot be reasonably measured, in which
case the acquired assets are measured at the carrying value of the assets
disposed.
Provisions and Contingent Liabilities
Provisions are recognized when Touchstone has a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of
economic benefit will be required to settle the obligation, and the amount can
be reliably estimated. Provisions are measured using the best estimate of the
expenditure required to settle the obligation.
A provision for an onerous contract is recognized when the expected economic
benefits to be derived by Touchstone from the contract are lower than the
unavoidable cost of meeting the obligations in the contract. The provision is
measured at the lower of the expected cost of terminating the contract and the
present value of the expected net cost during the remaining term of the
contract. Before a provision is established, the Company first recognizes any
impairment expense on any assets associated with the onerous contract.
A contingent liability is disclosed when Touchstone has a possible obligation
arising from a past event and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more future events not wholly under its
control, or when the Company has a present obligation that arises from past
events but is not recognized because it is not probable that an outflow of
resources will be required to settle the obligation, or the amount of the
obligation cannot be measured with sufficient reliability.
Lease Arrangements
The Company assesses whether an arrangement is a lease based on whether the
contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
As lessee
When Touchstone is a party to a lease arrangement as the lessee, leases are
recognized as a ROU asset and a corresponding lease liability on the balance
sheet on the date that the leased asset becomes available for use.
ROU assets and lease liabilities are initially measured on a present value
basis. Lease liabilities include the net present value of the lease payments
which may include fixed payments, variable lease payments based on an index or
a rate, amounts expected to be payable under residual value guarantees, and
payments to exercise an extension or termination option if the Company is
reasonably certain to exercise either option. The interest rate implicit in
the lease is used to determine the present value of the liability and ROU
asset arising from a lease, unless this rate is not readily determinable, in
which case the Company's incremental borrowing rate is used. Touchstone uses a
single discount rate for a portfolio of leases with reasonably similar
characteristics. Lease payments are allocated between the lease liability and
finance expense. Finance expenses are recognized in the statements of income
over the lease term.
ROU assets are measured at cost, which is composed of the amount of the
initial measurement of the lease obligation, less any incentives received,
plus any lease payments made at, or before, the commencement date and initial
direct costs and asset restoration costs, if any. ROU assets are depreciated
on a straight-line basis over the shorter of the estimated useful life of the
asset or the lease term.
Lease liabilities and ROU assets are remeasured when there is a modification
to the underlying contract terms, a change in the future lease payments
arising from a change in an index or rate, if there is a change in the amount
expected to be payable under a residual value guarantee, or if there is a
change in the assessment of whether the Company will exercise a purchase
extension or termination option.
Leases that have terms of less than twelve months or leases on which the
underlying asset is of low value are recognized as an expense in the
statements of income on a straight-line basis over the lease term.
As lessor
Where Touchstone acts as the lessor in a lease arrangement, the Company
determines at inception whether the lease is a finance lease or an operating
lease. Leases where the Company transfers substantially all of the risk and
rewards incidental to ownership of the underlying asset are classified as
finance leases. Under a finance lease, Touchstone records the current portion
of the finance lease in accounts receivable and the non-current portion in
other assets. Finance interest income related to the lease is recognized using
an approach that equals a constant rate of return on the net investment of the
lease. The net investment of the lease is the aggregate of the net minimum
lease payments and unearned finance income discounted at the interest rate
implicit in the lease. Unearned finance income is deferred and recognized in
the statements of income over the lease term against net finance expense. The
Company records lease payments received under operating leases as other
revenue on a straight-line basis over the lease term.
Bank Debt
The Company's bank debt balance includes three term loan facilities and a
revolving loan facility that may be renewed on a two-year basis. The term loan
facilities were initially measured at fair value, net of all transaction fees,
and are subsequently measured at amortized cost using the effective interest
rate method. The discount on each term loan facility is unwound using the
effective interest rate method to the face value at maturity, and the
associated accretion expense is recognized in the statements of income in net
finance expense. The revolving loan facility is measured at amortized cost
using the effective interest rate method.
Convertible Debenture and Warrants
The Company's convertible debenture issued in August 2025 was designated as a
hybrid financial instrument measured at FVPTL in accordance with IFRS 9
Financial Instruments ("IFRS 9").
On issuance, the convertible debenture was initially recognized based on the
gross proceeds, net of the holder's placement fee, and the fair value
allocated to the detachable warrants. The fair value of the convertible
debenture is remeasured at each reporting date using a valuation model
incorporating assumptions related to the volatility of the Company's share
price, the risk-free interest rate, credit risk, forward foreign exchange
rates, and the expected timing and probability of conversion. Changes in fair
value are recognized as non-cash components of net finance expense. If
converted, the carrying amount is reclassified to share capital. Although the
debenture matures in 2028, it remains classified as a current liability
because it is convertible at the holder's option at any time prior to
maturity.
The fair value of the detachable warrants was determined using the
Black-Scholes option pricing model, based on assumptions regarding share price
volatility, the risk-free rate, and the expected term. The value attributed to
the warrants was recorded in equity on issuance, as they are exercisable for a
fixed number of common shares at a fixed exercise price. The warrants are not
subsequently remeasured, and the recorded balance is reclassified to share
capital upon exercise.
Decommissioning Liabilities
Provisions for abandonment and reclamation obligations associated with
Touchstone's E&E and PP&E assets are recognized as decommissioning
liabilities. Decommissioning liabilities are measured at the present value of
Management's best estimate of expenditures required to settle the liability at
the end of the related assets' useful life at the balance sheet reporting
date.
The discount rate used to determine the present value is a risk-free rate that
reflects the currency and the estimated timing of the expenditure. On at least
a quarterly basis, Management reviews these estimates, and any changes, if
any, are applied prospectively. These changes are recognized as an increase or
decrease to the liability, with a corresponding increase or decrease to the
carrying amount of the related asset.
The capitalized amount included in PP&E is depleted based on a
unit-of-production basis consistent with the underlying assets. The liability
is increased in each reporting period with the passage of time, and the
associated accretion expense is recognized in the statements of income as
finance expenses. Periodic revisions to the liability-specific risk-free
discount rate, estimated timing of cash flows, or to the estimated
undiscounted cost can also result in an increase or decrease to the
decommissioning liability and the related asset. Actual costs incurred upon
settlement of the obligations are recognized against the provision to the
extent of the liability recognized.
With respect to decommissioning liabilities associated with the Company's
operating agreements with Heritage, the Company is obligated to pay its
proportional share of well abandonment costs. This share is determined by the
ratio of the Company's cumulative crude oil sales from a specific well
compared to the well's total historical production. Touchstone remains
responsible for its working interest share of site restoration, well
abandonment costs and removal of infrastructure and facilities used in
P&NG operations conducted on its properties under production licences with
the Government of Trinidad and Tobago Ministry of Energy and Energy Industries
("MEEI") and private landowners.
Revenue Recognition
The Company principally generates revenue from the sale of commodities,
including crude oil, natural gas liquids ("NGLs") and natural gas. Revenue is
recognized when the Company satisfies its performance obligations by
transferring control of the commodity to the buyer. This occurs when the buyer
has the ability to direct the use of and obtain substantially all the
remaining benefits from the commodity, and the Company has a present right to
payment.
Revenue from the sale of crude oil and NGLs separated at the Company's
processing facilities is recognized at the point in time when the product is
delivered to Heritage at its sales batteries or designated facilities. This
delivery represents the transfer of legal title and control. Realized prices
are based on contractually agreed-upon pricing mechanisms, typically
referencing local and global pricing benchmarks adjusted for quality
differentials.
The Company recognizes natural gas sales revenue at the point of delivery
based on the following primary arrangements:
· Domestic market: Revenue is recognized upon delivery to the
National Gas Company of Trinidad and Tobago ("NGC") at the field gate or inlet
to the NGC pipeline system.
· Export-linked sales: For Central block natural gas sales to the
Atlantic LNG facility, revenue is recognized upon delivery at the specified
inlet point. The transaction price is variable and determined using a
contractually defined formula linked to global energy benchmarks. This
includes provisional pricing adjustments for heating value and liquids
content, with final adjustments recognized when the definitive values are
determined.
Touchstone may also generate revenue from third-party product gathering and
processing through its infrastructure. This is recognized as other revenue in
the statements of income as the services are provided, typically based on
throughput volumes and contractually agreed-upon tariffs.
Share-based Compensation Plans
The Company's share-based compensation plans include both cash-settled awards
and equity-settled awards.
The Company's restricted share units ("RSUs"), performance share units
("PSUs") and deferred share units ("DSUs") are considered cash-settled awards.
Liabilities associated with cash-settled awards are determined based on the
fair value of the award at the grant date and are subsequently revalued at
each period-end. This valuation incorporates the period-end share price,
dividends declared during the period, the number of awards outstanding at each
period-end, and certain Management estimates, such as a performance multiplier
and estimated forfeitures. Compensation expense is recognized in the
statements of income over the relevant service period with a corresponding
increase or decrease in accrued liabilities. Classification of the associated
current and non-current liabilities is dependent on the expected payout dates
of the individual awards.
Compensation expense associated with equity-settled awards for stock options
is determined based on the fair value of the stock option at the grant date,
as measured using the Black-Scholes option-pricing model and is recognized
over the period that the options vest with a corresponding increase to
contributed surplus. The estimated forfeiture rate is adjusted to reflect the
actual number of stock options that vest. When equity-settled awards are
exercised, the consideration received, and the associated amounts previously
recorded as contributed surplus are reclassified to shareholders' capital.
Income Taxes
Income tax expense or recovery comprises current and deferred tax and is
recognized in the statements of income, except to the extent that it relates
to items recognized directly in equity, in which case the related income tax
is also recorded in equity.
Current income tax is the expected income tax payable on taxable income for
the period, using enacted or substantively enacted income tax rates at the
reporting date and any adjustment to income tax payable in respect of previous
years.
Deferred income tax is recognized using the balance sheet method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred income taxes are not recognized for temporary differences
on the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable
profit and loss or for taxable temporary differences arising on the initial
recognition of goodwill. Deferred income tax is measured at the income tax
rates that are expected to be applied to temporary differences when they
reverse, based on the laws that have been enacted or substantively enacted by
the reporting date.
Deferred income tax assets and liabilities are presented as non-current.
Deferred income tax assets and liabilities are offset if there is a legally
enforceable right to set off the recognized amounts, and the intent is to
either settle on a net basis or to realize the assets and settle the
liabilities simultaneously. A deferred income tax asset is recognized for
unused tax losses, tax credits, and deductible temporary differences only to
the extent that it is probable that future taxable profits will be available
against which they can be utilized. Deferred income tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Income Per Share
Basic income per share is calculated by dividing net income attributable to
shareholders by the weighted average number of common shares outstanding
during the period.
Diluted income per share is calculated by adjusting the weighted average
number of common shares outstanding for the dilutive common shares related to
the Company's share-based compensation plans, convertible debenture and
warrants, which could have a dilutive impact on net income during the year.
The number of shares included is computed using the treasury stock method,
whereby the common shares are assumed to be purchased at the average market
price.
4. Future Accounting Pronouncements
Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments:
Disclosures
In May 2024, the International Accounting Standards Board ("IASB") issued
amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments:
Disclosures to clarify the date of recognition and derecognition of financial
assets and liabilities. The amendments are effective for fiscal years
beginning on or after January 1, 2026, and are not expected to have a material
impact on the Company's financial statements.
IFRS 18 Presentation and Disclosure in Financial Statements
IFRS 18 Presentation and Disclosure in Financial Statements ("IFRS 18") was
issued in April 2024 by the IASB and replaces IAS 1 Presentation of Financial
Statements. IFRS 18 introduces a defined structure to the statements of
comprehensive income, including new totals, subtotals, and categories for
income and expenses. In addition, management defined performance measures will
require note disclosure. IFRS 18 is required to be adopted retrospectively and
is effective for fiscal years beginning on or after January 1, 2027, with
early adoption permitted. The Company is currently assessing the extent of the
impact of IFRS 18 on its consolidated financial statements.
5. Use of Estimates, Judgements and Assumptions
The timely preparation of financial statements in conformity with IFRS
requires Management to make estimates, judgments and assumptions that affect
the application of accounting policies and the reported amounts of assets,
liabilities, revenues, expenses and the disclosure of contingent liabilities.
These estimates, judgments and assumptions are subject to change, and actual
results could differ from those estimated, and those differences could be
material. Estimates and underlying assumptions are reviewed on an ongoing
basis, and any revisions to accounting estimates are recognized in the period
in which the estimates are revised.
Significant estimates and judgements made by Management in the preparation of
these financial statements are discussed below.
Financial Instruments
The estimated fair value of financial instruments is reliant upon a number of
estimated variables including forward commodity prices, foreign exchange rates
and interest rates as well as the risk of non-performance. Fair value
estimates of financial instruments are made at a specific point in time, based
on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
values.
Additionally, estimates must be made with respect to impairment of financial
assets and the provision of expected credit losses recognized. In making an
assessment as to whether financial assets are credit-impaired, Management
considers historically realized bad debts, any applicable public credit
ratings, evidence of a debtor's present financial condition and whether a
debtor has breached certain contracts, the probability that a debtor will, or
has entered bankruptcy or other financial reorganization, changes in economic
conditions that correlate to increased levels of default, the number of days a
debtor is past due in making a contractual payment, and the term to maturity
of the specified receivable.
Hybrid financial instruments
The Company measures the convertible debenture at FVTPL at each reporting
date. This requires the use of a valuation model with several unobservable key
inputs (Level 3). The fair value of the convertible debenture is determined
using valuation techniques that incorporate several key assumptions, including
the expected volatility of the Company's share price, risk-free interest
rates, the credit risk spread associated with the instrument, forward foreign
exchange rates, and the expected timing and probability of conversion.
The valuation relies on significant management judgment in selecting and
assessing these inputs, particularly those categorized as Level 3 within the
fair value hierarchy. Due to the high degree of estimation uncertainty,
changes in these underlying assumptions could significantly affect the
reported fair value of the instrument and the resulting revaluation gain or
loss recognized in the statements of income.
Business Combinations
Management judgment may be required to identify one of the combining entities
as the acquirer for accounting purposes and then to determine the fair value
of the acquired entity. The determination of fair value is estimated based on
information available at the date of acquisition and requires Management to
make assumptions and estimates about future events. The assumptions and
estimates with respect to determining the fair value of PP&E and E&E
assets using a FVLCD model generally require significant judgment and include
proved plus probable reserves and forecasted production volumes, forecasted
oil and natural gas prices, forecasted royalty, operating, general and
administration and income tax expenses, forecasted future development costs
and inflation rates, and discount rate. Assumptions are also required to
determine the fair value of the decommissioning liabilities associated with
the assets, the ROU assets and associated lease obligations and other deferred
liabilities.
Changes in any of the assumptions or estimates used in determining the fair
value of acquired assets and liabilities could impact the amounts assigned to
assets, liabilities, and goodwill (or net assets acquired in excess of
purchase consideration). Future comprehensive income will be affected as the
fair value on initial recognition impacts future depletion and depreciation
expenses, non-financial asset impairment expenses or reversals, or goodwill
impairment expenses.
Petroleum and Natural Gas Reserves
There are inherent uncertainties associated with estimating proved plus
probable reserves. Reserve estimates are based on a number of significant
assumptions, such as engineering and geological data, forecasted oil and
natural gas price estimates, forecasted production volumes and decline rates,
and the timing and amount of forecasted royalty, operating and future
development costs, all of which are subject to many uncertainties,
interpretations and judgments. Estimates reflect market and regulatory
conditions existing as of December 31, 2025 and 2024, which could differ
significantly from future periods. The estimate of reserves and the related
cash flows are evaluated by Touchstone's independent qualified reserves
evaluator at least annually in accordance with NI 51-101.
Petroleum and Natural Gas Investments
The Company applies judgment when classifying the nature of P&NG
investments as E&E or PP&E and when determining whether capitalization
of the initial costs of these investments is appropriate. The Company uses
historical drilling results, project economics, resource quantities, estimated
operating expenses and future development costs to make judgments about future
events and circumstances.
Determination of Cash-generating Units
Determination of what constitutes a CGU is subject to Management's judgement.
The recoverability of P&NG development asset carrying values included in
PP&E are assessed at the CGU level, and the asset composition of a CGU can
directly impact the recoverability of the assets included therein. Geological
formation, shared infrastructure and marketing arrangements, product type,
geographic location, and internal management are key factors considered when
grouping Touchstone's P&NG development assets into CGUs.
Recoverability of Asset Carrying Values
Management applies judgement in assessing the existence of indicators of
impairment and reversal of impairment based on various internal and external
factors.
In estimating the recoverable amount of E&E assets, Management factors in
future development plans, licence expiries, and required regulatory approvals
into the relevant asset assessment. Where applicable, the Company uses proved
plus probable reserves to assess certain E&E assets for impairment prior
to being transferred to PP&E as estimated by the Company's independent
qualified reserves evaluator. E&E assets remain capitalized as long as
sufficient progress is being made in assessing whether the projects are
technically feasible and commercially viable. This assessment requires
significant Management judgement, as E&E assets are subject to continuous
internal review to confirm the ongoing intent to establish the technical
feasibility and commercial viability of a project.
The recoverable amounts of Touchstone's PP&E CGUs are estimated based on
VIU calculations using discounted pre-tax cash flows derived from the
Company's proved plus probable reserves as estimated by the Company's
independent qualified reserves evaluator. The reserve evaluation is based on
an estimated reserve life up to a maximum of 50 years. Key input estimates
used in the determination of related future cash flows from proved plus
probable reserves are set forth below.
· Proved plus probable reserves and forecasted production volumes:
Assumptions that are valid at the time of reserves estimation may change
significantly when new information becomes available. Changes in forecasted
oil and natural gas price estimates, forecasted operating costs, required
forecasted future development costs or recovery rates may change the economic
status of reserves and may result in revisions to reserves estimates.
Discounted future cash flow models consider development plans approved by
Management and reasonable assumptions that a market participant would apply in
establishing a development plan for the assets.
· Forecasted oil and natural gas prices: Forecasted product pricing
estimates are used in the discounted future cash flow models. These prices are
adjusted for consideration stipulated in contracts with customers. Commodity
prices have experienced increased volatility in recent years due to global and
regional factors including supply and demand fundamentals, inventory levels,
expected future demand, economic and geopolitical factors.
· Forecasted royalty, operating, general and administration and
income tax expenses: Estimates of these inputs are based on historical results
and estimates regarding inflation over the forecast periods. Forecasted income
tax calculations are based on the laws that have been enacted or substantively
enacted for the appropriate cash flow streams.
· Forecasted future development costs and inflation rates:
Forecasted future development costs are estimated based on expected future
costs of wells and facilities and estimates regarding inflation over the
forecast periods. There also exists uncertainty regarding the estimated timing
of capital projects, as the Company has significant development opportunities
in several properties, and the ultimate pace of development is controlled to
meet future capital expenditure and liquidity targets.
· Discount rate: The discount rates used to calculate the net
present value of future cash flows are based on estimates of an approximate
industry peer group weighted average cost of capital as appropriate for each
CGU being tested. Changes in the general economic environment could result in
significant changes to this estimate.
Depletion of Petroleum and Natural Gas Development Assets
Depletion of P&NG development assets is determined based on proved plus
probable reserves as well as forecasted future development costs estimated by
the Company's independent qualified reserves evaluator.
Exploration and Evaluation Assets
E&E assets remain capitalized at the operating level area as long as
sufficient progress is being made in assessing whether the recovery of
P&NG products is technically feasible and commercially viable. Determining
whether sufficient progress has been made is a judgemental area, and it is
possible to have E&E assets classified as such for several years while
activities are being conducted, or the Company is seeking regulatory and
internal approvals for development plans. E&E assets are subject to
ongoing Management review to confirm the intent to establish technical
feasibility and commercial viability of a discovery. This assessment includes
many changing factors, including reserves, project economics, expected capital
expenditures and production expenses, access to infrastructure, obtaining and
the timing of receiving required regulatory approvals, and potential
infrastructure construction and expansions. Furthermore, the transfer of
E&E assets to PP&E is based on Management's judgement of technical
feasibility and commercial viability.
Lease Arrangements
Management applies judgment in reviewing each of its contractual arrangements
to determine whether they contain a lease. Leases that are recognized are
subject to further Management judgment and estimation in various areas
specific to the contractual arrangements, including lease terms and discount
rates. In determining the lease term to be recognized, Management considers
all facts and circumstances that create an economic incentive to exercise an
extension option or not to exercise a termination option. Where the discount
rate implicit in a lease cannot be readily determined, the rate is estimated
using Touchstone's incremental borrowing rate. This represents the rate that
the Company would incur to obtain the funds necessary to purchase an asset of
a similar value, with comparable payment terms and security in a similar
economic environment.
Provisions and Contingent Liabilities
The determination of provisions and disclosure of contingent liabilities
involves Management judgements about the probability of outcomes of future
events and estimates on timing and amount of expected future cash flows. Such
disclosure could relate to predicted outcomes of ongoing legal matters,
ongoing or completed asset dispositions, and current regulatory processes.
Decommissioning Liabilities
The provision for abandonment and reclamation obligations associated with
Touchstone's E&E and PP&E assets is based on numerous assumptions and
judgements, including ultimate remediation plans, estimated costs to settle
the obligations, the Company's proportionate share of obligations under
operating agreements with third parties, inflation factors, risk-free discount
rates, the expected timing of settlement, and changes in the applicable legal
and regulatory environments. Actual costs and timing of cash outflows could
differ from estimates because of changes in laws and regulations and market
conditions. Additionally, further discovery, analysis of site conditions, and
changes in technology could also cause actual amounts to differ from estimated
amounts.
Share-based Compensation
Compensation expense recognized for Touchstone's equity-settled stock option
plan is measured using the Black-Scholes option pricing model. The measurement
inputs to this model, including expected volatility, weighted average expected
life of the stock options, expected dividend yield, risk-free interest rate
(based on Government of Canada bonds) and expected forfeitures, rely on
Management's judgements. Forfeitures are estimated through the vesting period
based on past experience and future expectations and are adjusted upon actual
vesting and forfeitures.
Compensation expense accrued for PSUs awarded under Touchstone's share-based
compensation plan is dependent on an adjustment to the final number of PSU
awards that eventually vest based on a performance multiplier that is
estimated by Management. Large fluctuations in compensation expense may occur
due to changes in the underlying common share price or revised Management
estimates of relevant performance factors.
Income Taxes
Accounting for income taxes is a complex process requiring Management to
interpret frequently changing laws and regulations and make judgments relating
to the application of tax law, the estimated timing of temporary difference
reversals, and the estimated realization of income tax assets. Income tax
filings are subject to subsequent government audits and reassessments and
changes in facts, circumstances, and interpretations of the standards may
result in a material change in the Company's provision for income taxes.
6. Financial Assets and Credit Risk
Credit risk is the risk of a financial loss to the Company if a partner or
counterparty to a product sales contract, financial instrument, jointly
controlled operation, or other financial transaction fails to meet its
contractual obligations. As at December 31, 2025, Touchstone's exposure to
credit risk related primarily to its accounts receivable balances.
Credit risk is typically considered low for the Company's accounts receivable
balances, as exposure primarily relates to monthly commodity sales to
Government of Trinidad and Tobago ("GOTT") owned entities and a third-party
LNG marketing company, joint interest billings from Heritage, and value added
tax ("VAT") receivables from the GOTT.
For the year ended December 31, 2025, the Company's P&NG sales were
concentrated among three customers, each representing more than 10 percent of
annual sales.
P&NG sales are generally collected within one to two months following
production. As at December 31, 2025, approximately 13 percent of the Company's
credit exposure was attributed to accrued revenue from December 2025
production volumes. Joint interest billings are typically settled within one
to three months following invoicing.
The following table discloses the composition and aging of Touchstone's
accounts receivable balances, representing the Company's maximum credit risk
exposure.
($000's) December 31, December 31, 2024
2025
Composition
Petroleum and natural gas sales 3,531 4,334
Joint interest billings 5,669 806
VAT 9,420 7,678
Other 1,024 464
Amount to be remitted pursuant to business combination (Note 7) 8,525 -
Accounts receivable balance 28,169 13,805
Aging
Current (less than 30 days) 8,985 6,045
31-60 days 1,432 539
61-90 days 1,438 556
Past due (greater than 90 days) 7,879 6,665
19,644 13,805
Amount to be remitted pursuant to business combination (Note 7) 8,525 -
Accounts receivable balance 28,169 13,805
In connection with the business combination (refer to Note 7), the Company
recognized $8,525,000 in accounts receivables relating to VAT and income tax
receivable from the GOTT as at December 31, 2025. Per the share purchase
agreement, these funds are only remitted to the seller upon collection. As a
corresponding liability was recorded as an acquisition consideration payable,
the Company bears no credit risk regarding these specific balances.
As at December 31, 2025 and 2024, the Company determined the expected credit
loss on its accounts receivables was $nil. Management considers past due
balances fully recoverable as they primarily represent VAT receivable from the
GOTT. While the timing of recovery remains uncertain, the Company has no
historical record of collection issues.
During the year ended December 31, 2025, the Company collected $724,000 of
past due VAT receivable and received approximately $2,960,000 in TT$
denominated government-issued bonds in lieu of VAT payments. These bonds were
sold to a Trinidad-based financial institution in September 2025 for net
proceeds of $2,862,000. A loss of $104,000 was included in net finance expense
during the year ended December 31, 2025 related to this transaction.
7. Business Combination
On May 16, 2025, the Company, through its wholly owned Trinidadian subsidiary,
completed the acquisition of 100 percent of the share capital of a Shell
Trinidad Central Block Limited (the "Acquisition") for preliminary cash
consideration of $28,400,000. The Acquisition was financed through an
additional $30 million six-year term loan facility (refer to Note 13).
The acquired entity holds a 65 percent operating participating interest in the
onshore Central block exploration and production licence, with Heritage
holding the remaining 35 percent interest. Effective December 12, 2025, the
acquired entity was amalgamated with an existing Trinidadian subsidiary of the
Company.
The Central block asset includes four producing natural gas wells and an
associated natural gas processing facility. The Acquisition provides
Touchstone with increased low-decline base production, exposure to global
liquefied natural gas pricing, and expanded access to the hydrocarbon-rich
Herrera fairway, which is contiguous with the Company's Ortoire block.
Purchase Price Allocation
The Company estimated the fair value of P&NG development assets acquired
as at the acquisition date using proved plus probable P&NG reserves
derived from an evaluation prepared by the Company's independent qualified
reserves evaluator. Associated future cash flows were discounted at an
after-tax rate of 30 percent to reflect acquisition-date market participant
assumptions. The fair value of the associated decommissioning liabilities was
determined using a credit-adjusted risk-free rate of 14 percent.
The following purchase price allocation ("PPA") is based on Management's best
estimate of the fair values of assets acquired and liabilities assumed and is
subject to change based upon finalizing the value of the net assets acquired.
($000's)
Consideration
Cash consideration paid 28,400
Consideration payable (Note 6) 8,548
Total consideration 36,948
Net assets acquired
Accounts receivable (Note 6) 5,082
Accounts receivable to be remitted to seller (Note 6) 8,548
Inventory 60
Petroleum and natural gas development assets (Note 9) 43,828
Abandonment fund (Note 15) 6,009
Accounts payable and accrued liabilities (Note 11) (5,035)
Decommissioning liabilities (Note 15) (3,184)
Deferred income tax liability (Note 21) (18,360)
Total identifiable net assets acquired 36,948
Measurement Period Adjustments
The PPA is subject to change as the Company continues to evaluate and obtain
further information regarding the facts and circumstances that existed at the
acquisition date. The Company may recognize adjustments to the fair value of
the net assets acquired and the resulting consideration within the measurement
period, which shall not exceed one year from the acquisition date.
During the year ended December 31, 2025, the Company obtained new information
related to the acquisition-date fair values, resulting in several
retrospective revisions to the preliminary PPA. Specifically, consideration
payable and accounts receivable to the seller each increased by $24,000.
Accounts receivable decreased by $196,000, while accounts payable and accrued
liabilities decreased by $1,330,000. Additionally, the Company recognized an
increase of $716,000 to decommissioning obligations based on updated
environmental assessments of the acquired facility. These adjustments led to
an $855,000 decrease in the fair value attributed to P&NG development
assets, which was partially offset by a $437,000 decrease in the related
deferred income tax liability.
Pro-forma Results of Operations
The results of operations from the Acquisition have been included in the
consolidated financial statements effective May 16, 2025. From the acquisition
date to December 31, 2025, the acquired operations contributed P&NG sales
of $9,277,000 and a net loss of $746,000.
Had the Acquisition closed on January 1, 2025, Management estimates the
acquired operations would have contributed approximately $14,755,000 in
P&NG sales and an estimated net loss of $1,302,000 for the year ended
December 31, 2025. These pro-forma amounts are based on unaudited financial
information prepared by the acquiree and do not reflect any potential
synergies, integration costs, or other adjustments that could arise from
combining the operations.
Contractual Obligations
The following table summarizes the estimated minimum contractual payments
acquired as at December 31, 2025, consisting of lease payments and fees
related to the Central block exploration and production licence.
($000's) Total Estimated payments due by year
2026 2027 2028 2029 2030 Thereafter
Licence obligations 3,071 449 473 499 526 555 569
8. Exploration and Evaluation Assets
The following table summarizes the changes in the Company's E&E assets for
the years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Balance, beginning of year 3,743 5,030
Additions 1,848 1,046
Impairment expense (Note 10) - (2,311)
Effect of changes in foreign exchange rates (20) (22)
Balance, end of year 5,571 3,743
Asset Disposition
During the year ended December 31, 2024, the Company disposed of a
non-operated interest in the previously impaired Cory Moruga exploration
property. In consideration for the interest, the purchaser assumed $779,000 in
decommissioning and accrued liabilities. As the carrying value of the
operating area was previously impaired to $nil, the transaction resulted in a
$779,000 gain on asset disposition recognized during the year ended December
31, 2024.
9. Property, Plant and Equipment
($000's) P&NG development assets ROU Corporate assets Total
assets
Cost
Balance, January 1, 2024 186,846 5,492 2,697 195,035
Additions 21,256 2,930 1,449 25,635
Transfers within PP&E 1,283 (1,283) - -
Change in decommissioning assets 97 - - 97
(Note 15)
Acquisitions 356 - - 356
Dispositions (1,085) - - (1,085)
Foreign exchange translation (1,272) (40) (187) (1,499)
Balance, December 31, 2024 207,481 7,099 3,959 218,539
Acquired on close of Acquisition (Note 7) 43,828 - - 43,828
Additions 26,511 43 49 26,603
Transfers within PP&E 1,307 (1,307) - -
Change in decommissioning assets 3,124 - - 3,124
(Note 15)
Lease modification (Note 12) - 269 - 269
Dispositions (1,792) - - (1,792)
Foreign exchange translation (639) 34 101 (504)
Balance, December 31, 2025 279,820 6,138 4,109 290,067
Accumulated depletion, depreciation and impairment
Balance, January 1, 2024 84,029 726 2,132 86,887
Depletion and depreciation 8,245 1,020 236 9,501
Impairment expense (Note 10) 337 - - 337
Foreign exchange translation (392) (18) (158) (568)
Balance, December 31, 2024 92,219 1,728 2,210 96,157
Depletion and depreciation 11,573 610 302 12,485
Foreign exchange translation (351) 7 92 (252)
Balance, December 31, 2025 103,441 2,345 2,604 108,390
Carrying amounts
Balance, December 31, 2024 115,262 5,371 1,749 122,382
Balance, December 31, 2025 176,379 3,793 1,505 181,677
As at December 31, 2025, future development costs of $167.1 million were
included in P&NG development asset cost bases for depletion calculation
purposes (2024 - $168.0 million).
During the year ended December 31, 2025, the Company capitalized $400,000 of
direct and attributable overhead charges to PP&E (2024 - $532,000).
Asset Swaps
On December 1, 2025, the Company completed the sale of its 100 percent working
interest in the Fyzabad oil property. The transaction was structured as an
asset swap for services, under which the purchaser committed to drilling three
turnkey oil wells. The total consideration, valued at $2,303,000, resulted in
a gain on sale of $4,981,000 recorded during the year ended December 31, 2025.
No impairment was recognized upon the initial classification of the assets and
liabilities as held for sale. As at December 31, 2025, $2,188,000 of the
consideration related to drilling services was classified as non-current other
assets.
During the year ended December 31, 2024, the Company closed an asset swap
transaction. Touchstone swapped its 100 percent working interest in a non-core
privately leased property for a 100 percent working interest in an operating
agreement with Heritage governing the Balata East block. The Company recorded
a $1,434,000 gain on acquisition during the year ended December 31, 2024,
representing the excess of the $237,000 identifiable net assets acquired over
the $1,197,000 net liabilities of the assets disposed.
Disposition
During the year ended December 31, 2024, Touchstone disposed of its interest
in the CO-2 lease operating agreement for aggregate consideration of
approximately $1,066,000. The transaction resulted in a pre-tax impairment
expense of $474,000, with no further gain or loss recorded on closing.
10. Impairment
Exploration and Evaluation Assets
The following table summarizes E&E asset impairment expense (reversal) for
the years ended December 31, 2025 and 2024 by operating area.
Operating Area ($000's) Year ended December 31,
2025 2024
Cory Moruga - (63)
Ortoire - 2,385
E&E asset impairment expense - 2,322
2025 Assessment
As at December 31, 2025, the Company assessed its E&E assets for
indicators of impairment and concluded that no such indicators existed.
2024 Assessment
During the year ended December 31, 2024, Touchstone recognized a $63,000
impairment reversal in the Cory Moruga operating area reflecting changes in
decommissioning estimates prior to the disposal of the Company's interest in
the licence (refer to Note 8).
Additionally, the Company identified indicators of impairment in the Ortoire
operating area as at December 31, 2024, following a realignment of long-term
capital priorities. An impairment test determined that the recoverable amount
was insufficient to support the carrying value, resulting in a pre-tax
impairment expense of $2,385,000.
Property, Plant and Equipment
The following table summarizes PP&E impairment expense (reversal) by CGU.
CGU ($000's) Year ended December 31,
2025 2024
CO-2 - 474
Coho - (137)
PP&E asset impairment expense - 337
2025 Assessment
As at December 31, 2025, the Company identified indicators of impairment for
the Cascadura CGU due to a material decrease in assigned reserve volumes as
reported in the year-end independent reserves evaluation. Consequently, the
Company performed an impairment test using a VIU calculation. The results
indicated that the $80,017,000 estimated recoverable amount of the CGU
exceeded its $47,288,000 carrying value (net of associated deferred income tax
liabilities), and no impairment was required.
The estimated recoverable amount was determined using a VIU calculation
incorporating discounted after-tax cash flows of proved plus probable
reserves. The calculation utilized forward commodity prices and cost estimates
assessed by the Company's independent qualified reserves evaluator. Cash flows
were discounted at an after-tax rate of 25 percent (approximately 55 percent
on a pre-tax basis).
The recoverable amount was calculated using the following benchmark prices
(adjusted for CGU-specific differentials) effective January 1, 2026. Prices
and costs beyond 2035 were adjusted for inflation at an annual rate of 2
percent.
2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Brent crude oil ($/bbl) 63.92 69.13 74.36 76.10 77.62 79.17 80.76 82.37 84.01 85.70
Henry Hub natural gas ($/MMBtu) 3.74 3.78 3.85 3.93 4.01 4.09 4.17 4.26 4.34 4.43
Sensitivity analysis indicated that a 1 percent change in the discount rate or
a 10 percent change in commodity prices would not have resulted in an
impairment expense for the Cascadura CGU as at December 31, 2025.
2024 Assessment
During the year ended December 31, 2024, the Company recorded a $474,000
pre-tax impairment expense for the CO-2 CGU as the FVLCD was lower than the
carrying value upon disposition (refer to Note 9).
Indicators of impairment were identified for the Cascadura and Coho CGUs in
2024 due to declines in assigned reserve volumes. Impairment tests using VIU
calculations resulted in a $137,000 reversal for the Coho CGU as noted in the
following table.
CGU ($000's) Carrying value((1)) Recoverable amount Impairment reversal
Cascadura 33,464 110,531 -
Coho 2,983 4,322 137
Note:
(1) Net of associated deferred income tax liabilities.
The following table details the forward benchmark prices used in estimating
the recoverable amount of each CGU as at December 31, 2024.
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Brent crude oil ($/bbl) 75.58 78.51 79.89 81.82 83.46 85.13 86.83 88.57 90.31 92.08
Henry Hub natural gas ($/MMBtu) 3.31 3.73 3.85 3.93 4.01 4.09 4.17 4.26 4.34 4.43
For the 2024 assessment, the Company applied a 20 percent after-tax discount
rate (approximately 53 percent pre-tax). An increase or decrease in the
discount rate by 1 percent or commodity prices by 10 percent would not have
affected the $137,000 pre-tax impairment reversal recorded as at December 31,
2024.
The VIU calculations were classified as Level 3 fair value measurements, as
significant inputs are based on non-observable market data and Management
estimates. Changes in key judgments, such as reserves revisions, changes in
forecasted commodity prices, inflation rates, operating expenses, future
development costs, or the discount rate would impact the estimated recoverable
amounts, and any resulting change in impairment would affect comprehensive
income.
11. Financial Liabilities and Liquidity Risk
Liquidity risk is the risk that the Company will be unable to meet its
financial obligations as they become due. Touchstone manages this risk through
prudent cash and debt management practices, including the continuous
monitoring of actual and forecasted cash flows, maintaining appropriate
working capital levels, and monitoring compliance with the financial covenants
under its loan agreement. The Company also regularly assesses its ability to
access additional liquidity through debt or equity financing as required.
As at December 31, 2025, the Company had a $25,405,000 working capital
deficiency, with no remaining borrowing capacity under its revolving loan
facility (refer to Note 13). The working capital deficit was primarily driven
by significant 2025 capital expenditures deployed throughout 2025,
approximately $12,786,000 in current bank debt, and the inclusion of the
$9,979,000 convertible debenture carrying value within current liabilities,
despite its long-term maturity profile.
To address the current working capital deficit and enhance financial
flexibility, the Company is actively pursuing a strategic recapitalization
plan. This initiative may include renegotiating existing credit facilities to
improve amortization terms and financial covenants, or the issuance of
additional equity (refer to Note 1).
Touchstone's near-term development strategy is focused on increasing operating
cash flows through its continued development activities. The Company intends
to maintain a disciplined approach to capital expenditures to preserve
financial flexibility and ensure it can meet current and anticipated financial
obligations, including planned capital programs and contractual commitments.
The following table summarizes the Company's estimated undiscounted cash
outflows and financial maturities of its financial liabilities as at December
31, 2025.
($000's) Undiscounted cash outflows((1)) Financial maturity by period
Less than 1 year 1 to 3 years Thereafter
Accounts payable and accrued liabilities((2)) 31,329 31,329 - -
Income taxes payable (Note 21) 749 749 - -
Lease liabilities((3)) (Note 12) 5,152 1,612 2,144 1,396
Bank debt((3)(4)) (Note 13) 67,287 16,700 33,526 17,061
Convertible debenture((3)) (Note 14) 14,125 625 13,500 -
Share-based compensation liabilities((5)) (Note 20) 429 303 126 -
Total financial liabilities 119,071 51,318 49,296 18,457
Notes:
(1) Undiscounted cash outflows represent total estimated payments and may
differ from financial statement carrying values.
(2) Excludes the current portions of lease liabilities and share-based
compensation liabilities.
(3) Includes both notional interest and principal components.
(4) Future interest payments are based on interest rates in effect as at
December 31, 2025. Interest rates on three of the Company's loan facilities
are reset annually (refer to Note 13).
(5) Represents accrued obligations for share-based compensation awards
expected to be settled in cash.
Refer to Note 13 "Bank Debt", Note 14 "Convertible Debenture", Note 23
"Capital Management" and Note 24 "Commitments and Contingencies" for further
details regarding the Company's debt structure, capital management objectives
and contractual obligations.
12. Lease Liabilities
Touchstone is a party to lease arrangements for a drilling rig, office
facilities, vehicles and equipment. Lease agreements are negotiated on an
individual basis and contain a wide range of varying terms and conditions. The
Company's lease arrangements have effective terms of one to eight years and
may include extension options. Discount rates used to calculate the present
value of lease payments during the year ended December 31, 2025, ranged
between 5 and 10 percent.
The following table provides a continuity of the Company's lease liabilities
for the years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Balance, beginning of year 5,866 4,328
Additions 43 2,930
Interest expense 499 415
Repayments (2,402) (1,775)
Modifications 237 -
Effect of changes in foreign exchange rates (2) (32)
Balance, end of year 4,241 5,866
Current (included in accounts payable and accrued liabilities) 1,259 1,498
Non-current 2,982 4,368
Lease liabilities balance 4,241 5,866
During the year ended December 31, 2025, the Company recorded an aggregate
lease modification of $237,000, reflecting the termination and an extension of
office leases.
In 2024, the Company extended a drilling services contract through October 6,
2026, requiring a minimal utilization of 120 days per annum. This resulted in
the recognition of a $2,930,000 lease liability and associated ROU asset.
The following table details the undiscounted cash flows (principal and
interest) related to the Company's lease liabilities as at December 31, 2025
and 2024.
($000's) December 31, December 31,
2025 2024
Less than one year 1,612 2,361
1 to 3 years 2,144 3,429
Thereafter 1,396 1,493
Undiscounted cash flows related to lease liabilities 5,152 7,283
Payments for short-term leases and leases of low-value assets for the year
ended December 31, 2025 were $210,000 (2024 - $67,000). These primarily
related to motor vehicles and well service equipment and were recognized
within operating expenses. Variable lease payments of $195,000, which are not
included in the measurement of lease liabilities, were recognized within
general and administration expense during the year ended December 31, 2025
(2024 - $181,000).
13. Bank Debt
On May 12, 2025, the Company entered into a Fourth Amended and Restated Loan
Agreement (the "Loan Agreement") with its Trinidad-based lender. The Loan
Agreement provided a new $30 million six-year non-revolving term loan facility
(facility 3), the proceeds of which were used to finance the Acquisition
(refer to Note 7).
The following table summarizes the Company's credit facilities under the Loan
Agreement as at December 31, 2025.
Facility Amount Maturity date Interest rate per annum Principal balance
($000's) ($000's)
Term loan facility 1 30,000 June 15, 2027 7.85% (fixed) 9,000
Term loan facility 2 10,000 April 30, 2029 6.08% (annually reset) 8,750
Term loan facility 3 30,000 May 12, 2031 8.21% (annually reset) 30,000
Revolving loan facility 10,000 May 12, 2027 6.09% (annually reset) 10,000
Total 57,750
As at December 31, 2025, outstanding principal balances totalled $57,750,000,
and there was no remaining available capacity under the revolving loan
facility.
The following table summarizes the movements of the Company's bank debt
balances for the years ended December 31, 2025 and 2024.
($000's) Term loan facility 1 Term loan facility 2 Term loan facility 3 Revolving loan facility Bank debt
Balance, January 1, 2024 20,977 - - 7,000 27,977
Advances, net of fees - 9,747 - 3,000 12,747
Repayments (6,000) - - - (6,000)
Accretion 16 51 - - 67
Balance, December 31, 2024 14,993 9,798 - 10,000 34,791
Advances, net of fees - - 29,423 - 29,423
Repayments (6,000) (1,250) - - (7,250)
Accretion 7 76 424 - 507
Balance, December 31, 2025 9,000 8,624 29,847 10,000 57,471
Current 6,000 2,500 4,286 - 12,786
Non-current 3,000 6,124 25,561 10,000 44,685
Bank debt balance 9,000 8,624 29,847 10,000 57,471
Security and Covenants
The Loan Agreement is principally secured by a first-ranking pledge of equity
interests and fixed and floating security interests over all assets of the
Company's Trinidad exploration and production subsidiaries. The Loan Agreement
contains industry standard representations and warranties, undertakings,
affirmative and negative covenants and events of default. A breach of any
covenant constitutes an event of default, upon which the lender may declare
outstanding principal and accrued interest immediately due and payable.
The Loan Agreement requires the Company to maintain specific financial
covenants, which are applicable on a consolidated basis and evaluated
annually. The following table details the status of these covenants as at and
for the year ended December 31, 2025.
Financial covenant description Limit Year ended December 31, 2025
Net senior funded debt((1)) to trailing annual EBIDA((2)) 3.00 times 4.88((5))
Net senior funded debt to book value of equity((3)) 0.70 times 0.41
Debt service coverage((4)) Minimum of 1.5 times 0.69((6))
Notes:
(1) "Net senior funded debt" is defined in the Loan Agreement as all
obligations for senior secured and unsecured borrowed money which bear
interest less restricted and unrestricted cash balances. Lease liabilities are
excluded from the calculation of net senior funded debt.
(2) "EBIDA" is defined in the Loan Agreement as earnings (loss) before
interest expenses, all non-cash items including depreciation and impairments,
and gains and losses attributable to extraordinary and non-recurring items.
(3) "Book value of equity" is defined in the Loan Agreement as
shareholders' capital, contributed surplus and retained earnings or deficit
excluding increases and decreases in retained earnings from E&E asset and
PP&E impairments or reversals and excluding payments of dividends.
(4) "Debt service coverage" is defined in the Loan Agreement as the
ratio of trailing annual EBIDA to the aggregate bank debt interest expense due
for the future annual period and scheduled principal payments in respect of
outstanding bank debt principal for the future annual period.
(5) In October 2025, the Company obtained a formal waiver for the net
senior funded debt to trailing annual EBIDA covenant for the year ended
December 31, 2025.
(6) Pursuant to the Loan Agreement, the debt service coverage covenant
was not required to be tested for the year ended December 31, 2025.
As a result of the waiver and the exclusion of the EBIDA test, the Company was
in compliance with all applicable covenants as at December 31, 2025.
As disclosed in Note 1, the Company projects a breach of its net senior funded
debt to trailing twelve-month EBIDA and debt service coverage covenants as of
December 31, 2026. Such a breach could result in the bank debt balance
becoming due and payable at that time. The Company is currently engaged in
discussions with its lender to restructure specific terms of the Loan
Agreement and address the projected breaches.
Restricted Cash
In accordance with the Loan Agreement, the Company is required to maintain
specific cash reserves for the duration of the term loan facilities. As at
December 31, 2025, $3,602,000 (2024 - $924,000) was held in restricted
accounts and classified as non-current restricted cash based on the maturity
profile of the related debt.
14. Convertible Debenture
On August 8, 2025, the Company issued a secured convertible debenture (the
"Debenture") with a private investor for gross proceeds of $12.5 million. The
Debenture matures on August 8, 2028, and bears interest at 5 percent per
annum, payable semi-annually on June 30 and December 31. In connection with
the issuance, the Company paid a 5 percent placement fee in cash and issued
6,250,000 detachable warrants to the holder.
The Debenture is convertible into common shares of the Company at the holder's
option at any time prior to maturity at a conversion price of approximately
US$0.22 per share, representing (the equivalent of C$0.30 per share). Interest
may be settled in cash or, subject to TSX approval and at the holder's
election, through the issuance of common shares based on the prevailing market
price and exchange rate at the time of payment.
The Debenture is secured by a first-ranking security interest over all present
and after-acquired personal property of the Company and a pledge of the shares
of its subsidiary, Touchstone Exploration (Barbados) Ltd.
The Company has elected to designate the entire hybrid contract as FVTPL in
accordance with IFRS 9.
· Initial recognition: The Debenture was recognized at an initial fair
value of $11,606,000, representing the gross proceeds net of the 5 percent
placement fee and the $269,000 fair value allocated to the detachable
warrants.
· Classification: The Debenture is classified as a current liability
because the holder has the option to convert the instrument into common shares
at any time.
· Subsequent measurement: The carrying value is remeasured to fair value
at each reporting date, with changes recognized in the statements of income.
As at December 31, 2025, the fair value of the Debenture was estimated at
$9,979,000, resulting in a $1,627,000 gain recognized within net finance
expense.
· Transaction costs: Incremental issuance costs of $167,000 were
expensed to net finance expense during the year ended December 31, 2025 (refer
to Note 18).
The fair value of the Debenture is classified within Level 3 of the fair value
hierarchy due to the use of significant unobservable inputs within the
valuation model, including assumptions regarding the expected volatility of
the Company's share price, the risk-free interest rate, the credit risk
associated with the instrument, forward foreign exchange rates, and the
expected timing and likelihood of conversion.
The following table summarizes the change in the carrying value of the
Debenture for the year ended December 31, 2025.
($000's) Year ended December 31, 2025
Balance, beginning of year -
Issuance of Debenture 11,606
Change in fair value (1,627)
Balance, end of year 9,979
Current 9,979
Non-current -
Convertible debenture balance 9,979
Detachable Warrants
In connection with the Debenture issuance, the Company issued 6,250,000
warrants. Each warrant entitles the holder to purchase one common share of the
Company at an exercise price of C$0.40 through August 8, 2027.
The warrants were valued at $269,000 using the Black-Scholes option pricing
model, based on assumptions regarding the volatility of the underlying share
price, the risk-free interest rate, and the expected term. The value assigned
to the warrants was recognized in equity upon issuance and is not subject to
subsequent remeasurement.
15. Decommissioning Liabilities and Abandonment Fund
Decommissioning Liabilities
The Company's decommissioning liabilities are based on its net ownership
interest in all wells and facilities, estimated future costs to reclaim and
abandon these assets, and the estimated timing of such expenditures.
Settlements of these obligations is forecasted to occur over the next fourteen
years, with the majority of costs estimated to be incurred subsequent to 2032.
Liabilities are expected to be financed through the designated abandonment
funds and the Company's internal resources available at the time of
settlement.
As at December 31, 2025, the estimated net present value of the
decommissioning liabilities was $12,081,000, based on an inflation-adjusted
undiscounted liability of $18,181,000 (2024 - $9,985,000 and $15,197,000,
respectively). The liabilities were calculated using a weighted average
risk-free discount rate of 5.7 percent and a long-term inflation rate of 2.1
percent (2024 - 5.5 percent and 1.9 percent, respectively).
The following table summarizes the changes in the Company's decommissioning
liability provision during the years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Balance, beginning of year 9,985 9,733
Liabilities incurred from development activities 417 407
Liabilities acquired on close of Acquisition (Note 7) 3,184 -
Liabilities acquired (Note 9) - 130
Liabilities settled - (19)
Accretion expense 345 226
Revisions to estimates((1)) 2,710 (282)
Dispositions (Notes 8 and 9) (4,528) (166)
Effect of changes in foreign exchange rates (32) (44)
Balance, end of year 12,081 9,985
Note:
(1) Revisions to estimates in 2025 primarily related to the adjustment
of the risk-free discount rate used for decommissioning liabilities acquired
in the Acquisition (Note 7) to align with the Company's year-end weighted
average risk-free rate, as well as updated inflation and cost assumptions.
Abandonment Fund
Under the terms of the Company's production and exploration licences and
related agreements, Touchstone is required to contribute to designated
abandonment funds based on production volumes. These funds are restricted for
use in the future abandonment of wells within the respective licenced areas.
As at December 31, 2025, the Company recognized $9,478,000 as non-current
abandonment fund assets (2024 - $2,965,000). This balance included $6,009,000
in contributions acquired through the Acquisition (refer to Note 7).
16. Shareholders' Capital
The Company is authorized to issue an unlimited number of voting common shares
without nominal or par value. Holders of common shares are entitled to one
vote per share at meetings of shareholders and are entitled to receive any
dividends declared by the Company.
Issued and Outstanding Common Shares
The following table summarizes changes in the number of common shares
outstanding and the related shareholders' capital for the years ended December
31, 2025 and 2024.
Number of shares outstanding Shareholders' capital
($000's)
Balance, January 1, 2024 234,212,726 114,965
Issued under share-based compensation plans 2,247,935 645
Balance, December 31, 2024 236,460,661 115,610
Issued pursuant to private placements, net of fees 88,272,948 13,595
Balance, December 31, 2025 324,733,609 129,205
Share-based compensation
For the year ended December 31, 2024, 2,247,935 stock options were exercised
for total cash proceeds of $415,000. An amount of $230,000 previously recorded
to contributed surplus in respect of these stock options was transferred to
shareholder's capital upon exercise.
Private placements
During the year ended December 31, 2025, the Company completed two equity
financings in the United Kingdom to strengthen its working capital position
and support development activities.
· May 2025 placement: Touchstone issued 24,636,585 common shares at
£0.205 per share (approximately C$0.38 per share) for gross proceeds of
$6,746,000 (£5,051,000). Net proceeds after transaction expenses were
$5,221,000.
· October 2025 placement: The Company issued 63,636,363 common
shares at £0.11 per share (approximately C$0.20 per share) for gross proceeds
of $9,138,000 (£7,000,000). Net proceeds totaled $8,374,000 after transaction
costs.
Weighted Average Common Shares
The following table presents the weighted average number of common shares used
in the calculation of basic and diluted net income per share.
Year ended December 31,
2025 2024
Weighted average common shares outstanding - basic 262,968,895 235,508,553
Dilutive impact of share-based compensation plans - 983,561
Weighted average common shares outstanding - diluted 262,968,895 236,492,114
For the year ended December 31, 2025, approximately 7.3 million stock options
(2024 - 9.7 million) and the common shares potentially issuable under the
Debenture and related warrants (Note 14) were excluded from the diluted
weighted average calculation as they were anti-dilutive.
17. Petroleum and Natural Gas Sales
The Company's revenue is derived primarily from the sale of crude oil, NGLs,
and natural gas to customers in Trinidad. All revenue is recognized at a point
in time when control of the product is transferred to the buyer, typically at
the delivery point defined in the respective sales contracts.
The following table presents P&NG sales by major product type for the
years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Crude oil 23,591 30,317
Natural gas liquids 3,388 3,331
Natural gas 18,838 23,822
Petroleum and natural gas sales 45,817 57,470
Revenue is typically collected in the month following production. As at
December 31, 2025, accounts receivable related to P&NG sales totaled
$3,531,000, representing December 2025 production (2024 - $4,334,000 from
December 2024 production).
18. Net Finance Expense
The following table summarizes the components of net finance expense for the
years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Interest income (107) (20)
Finance lease interest income (18) (26)
Lease liability interest expense (Note 12) 499 415
Bank debt interest expense (Note 13) 3,830 2,387
Debenture interest expense (Note 14) 250 -
Debenture issuance expense (Note 14) 167 -
Debenture revaluation gain (Note 14) (1,627) -
Accretion on bank debt (Note 13) 507 67
Accretion on decommissioning liabilities (Note 15) 345 226
Other 56 (31)
Net finance expense 3,902 3,018
19. Transaction Expense
For the year ended December 31, 2025, the Company incurred $471,000 in legal,
advisory, and due diligence costs specifically related to the Acquisition
(refer to Note 7).
During the year ended December 31, 2024, the Company recognized $1,957,000 in
transaction expenses related to a major acquisition that was ultimately
terminated, in addition to $66,000 of preliminary costs associated with the
2025 Acquisition.
20. Share-based Compensation Plans
The Company maintains share-based compensation plans to align the interests of
employees, directors, and officers with those of shareholders.
· Omnibus Incentive Compensation Plan ("Omnibus Plan"): Adopted in
June 2023, providing for the issuance of stock options, restricted share units
("RSUs"), and performance share units ("PSUs"). This plan replaced the
Company's former Stock Option Plan, although previously granted stock options
under the plan remain outstanding.
· Deferred Share Unit ("DSU") Plan: Adopted in June 2023 for
non-employee directors.
The aggregate number of common shares reserved for issuance under all
share-based compensation plans is limited to 10 percent of the Company's
issued and outstanding common shares.
Equity-settled Awards: Stock Options
Stock options vest in one-third instalments on each of the first three
anniversaries of the grant date, subject to continued service. Stock options
expire five years from the date of grant and entitle the holder to purchase
one common share at the grant exercise price. Equity-settled share-based
compensation expense is recognized over the vesting period. The following
table summarizes stock option activity for the years ended December 31, 2025
and 2024.
Number of stock options outstanding Weighted average exercise price (C$)
Issued and outstanding, January 1, 2024 14,327,935 1.10
Exercised (2,247,935) 0.25
Forfeited (349,000) 1.52
Issued and outstanding, December 31, 2024 11,731,000 1.25
Forfeited (1,379,666) 1.37
Expired (3,032,334) 0.83
Issued and outstanding, December 31, 2025 7,319,000 1.40
Exercisable, December 31, 2025 6,402,338 1.44
The following table sets forth outstanding stock options and their weighted
average remaining life as at December 31, 2025.
Range of exercise price per common share (C$) Number of stock options outstanding Weighted average Number of stock options Weighted average
remaining term (years) exercisable remaining term (years)
1.15 2,750,000 2.7 1,833,338 2.7
1.27 to 1.38 301,000 0.9 301,000 0.9
1.43 to 1.55 2,309,000 1.3 2,309,000 1.3
1.62 to 1.73 1,959,000 0.4 1,959,000 0.4
1.15 to 1.73 7,319,000 1.6 6,402,338 1.4
Cash Settled Awards
RSUs and PSUs
Share awards in the form of RSUs and PSUs are granted under the Omnibus Plan
to executive officers and key employees. Unless otherwise approved by the
Board, RSUs vest in equal one-third tranches on each of the first three
anniversaries of the grant date. PSU awards cliff vest on the third
anniversary of the grant date and are subject to a performance multiplier
ranging from zero times to 1.75 times based on achievement of predefined
corporate performance targets set by the Board over the vesting period. RSU
awards are fixed while the number of PSUs earned is variable.
Each RSU and PSU award may, at the Board's discretion, be settled in common
shares, cash, or a combination thereof. Currently, all share awards are
classified as cash settled. Cash-settled awards are measured at fair value
based on the Company's closing common share price as at the reporting date and
are recognized over the vesting period. PSU liabilities are further adjusted
based on the estimated performance multiplier. A forfeiture rate of 5 percent
is applied on grant and updated to reflect actual forfeitures.
DSUs
DSUs vest immediately upon grant but may only be redeemed after the director
ceases to be a member of the Board. DSUs are settled in cash based on the
market price of the Company's common shares at the time of redemption. DSU
liabilities are measured at fair value based on the Company's closing share
price at each reporting date.
Share award activity
The following table summarizes outstanding share awards for the years ended
December 31, 2025 and 2024.
(number of share awards outstanding) RSUs PSUs((1)) DSUs
Issued and outstanding, January 1, 2024 - - -
Granted 1,447,780 1,397,780 977,332
Issued and outstanding, December 31, 2024 1,447,780 1,397,780 977,332
Granted 3,537,139 3,423,974 1,476,424
Settled in cash (469,574) - -
Forfeited (670,236) (738,445) -
Issued and outstanding, December 31, 2025 3,845,109 4,083,309 2,453,756
Note:
(1) PSU figures are presented based on the number of notional units
granted, before application of any performance multiplier.
Share-based Compensation Expense
The following table summarizes share-based compensation expense for the years
ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Equity-settled compensation 246 1,133
Cash-settled compensation (8) 528
Capitalized expense (31) (72)
Share-based compensation expense 207 1,589
Share-based Compensation Liabilities
The following table summarizes changes in share-based compensation liabilities
for the years ended December 31, 2025 and 2024.
($000's) Year ended December 31, 2025 Year ended December 31, 2024
Balance, beginning of year 500 -
Liability incurred from grant of DSUs 283 429
Settled in cash (90) -
Increase in liability related to RSUs and PSUs 411 253
Fair value adjustments (703) (154)
Effect of changes in foreign exchange rates 28 (28)
Balance, end of year 429 500
Current (included in accounts payable and accrued liabilities) 303 383
Non-current 126 117
Share-based compensation liabilities balance 429 500
21. Income Taxes
The Company's operations in Trinidad are subject to a combined statutory
Petroleum Profits Tax ("PPT") and Unemployment Levy ("UL") rate of 55 percent.
The following table reconciles the expected income tax recovery at the
combined Trinidad statutory rate to the income tax recovery recognized during
the years ended December 31, 2025 and 2024.
($000's unless otherwise stated) Year ended December 31,
2025 2024
Net (loss) income before income taxes (202) 6,028
Statutory combined PPT and UL rate 55.0% 55.0%
Expected income tax (recovery) expense (111) 3,315
Effect on income tax resulting from:
Change in income tax assets not recognized (11,260) (8,006)
Income tax rate differential 425 (1,684)
Effect of changes in foreign exchange rates and other (144) 4,131
Income tax recovery (11,090) (2,244)
Current Income Taxes
The following table presents a continuity of the Company's current income tax
payable for the years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Balance, beginning of year 6 240
Current income tax expense:
PPT and UL 1,067 7
Corporate income tax and other 455 1,154
Income tax payments (301) (1,399)
Reclassed to accounts receivable (470) -
Effect of changes in foreign exchange rates (8) 4
Balance, end of year 749 6
Deferred Income Taxes
The Company's net deferred income tax liability relates entirely to its
Trinidad-based subsidiaries. The following table outlines the components of
the net deferred income tax liabilities for the years ended December 31, 2025
and 2024.
($000's) December 31, 2025 December 31, 2024
Deferred income tax liabilities:
PP&E in excess of income tax basis 69,589 29,618
Other 48 70
Deferred income tax assets:
Decommissioning liabilities (6,645) (636)
Lease liabilities (1,858) (2,734)
Bank debt (379) (3)
Non-capital losses (28,027) (1,575)
Intercompany interest (9,123) (6,816)
Net deferred income tax liability 23,605 17,924
As at December 31, 2025, the Company's net deferred income tax liability
increased by $5,681,000 from December 31, 2024. This was primarily driven by
the $18,360,000 deferred income tax liability recognized in connection with
the Acquisition (refer to Note 7), partially offset by deferred income tax
recoveries of $67,000 recognized through equity and $12,612,000 recognized
through comprehensive income.
Unrecognized Deductible Temporary Differences
The following table summarizes the Company's unrecognized deductible temporary
differences as at December 31, 2025 and 2024.
($000's) December 31, 2025 December 31, 2024
E&E assets 1,201 (2,618)
PP&E (4,144) (26,817)
Loss carryforwards 84,588 122,531
Decommissioning liabilities - 8,828
Other 4,914 2,435
Total unrecognized deductible temporary differences 86,559 104,359
Income Tax Losses
The following table summarizes the Company's estimated income tax losses
available for carryforward as at December 31, 2025 and 2024.
($000's) December 31, 2025 December 31, 2024
Trinidad PPT losses 56,054 44,178
Trinidad corporate income tax losses 66 63
Canada non-capital losses 84,522 80,817
Trinidad PPT losses and corporate income tax losses may be carried forward
indefinitely to reduce taxable income. PPT losses may only be utilized to
shelter up to 75 percent of income subject to PPT in any given year. As at
December 31, 2025, the Company did not recognize deferred tax assets for
$66,000 of Trinidadian losses (2024 - $41,028,000) or any of its Canadian
losses, as realization was not yet considered probable.
Tax legislation, regulations, and interpretations continue to evolve in the
jurisdictions in which the Company operates. As a result, income tax matters
are subject to ongoing review. Management believes that the provision for
income taxes recorded as at December 31, 2025 is adequate.
22. Financial Instruments and Market Risk Management
Financial Instruments and Fair Value
As of December 31, 2025, the Company's financial instruments measured at
amortized cost included accounts receivable, restricted cash, accounts payable
and accrued liabilities, income taxes payable, lease liabilities and bank
debt.
The carrying values of Touchstone's accounts receivable, accounts payable and
accrued liabilities and income taxes payable as of December 31, 2025
approximate their fair values due to the short-term nature of these
instruments. There were no transfers between levels in the fair value
hierarchy for the years ended December 31, 2025 and 2024.
The Debenture is a financial instrument measured at fair value on a recurring
basis and classified within Level 3 of the fair value hierarchy due to the use
of significant unobservable inputs. Fair value is estimated using a valuation
model that incorporates assumptions regarding the expected volatility of the
Company's share price, the risk-free interest rate, the credit risk associated
with the Debenture, forward foreign exchange rates, and the expected timing
and likelihood of conversion.
Market Risk Management
The Company is exposed to various financial and market risks inherent in
international oil and natural gas operations, including commodity price risk,
foreign exchange risk, interest rate risk, equity price risk, credit risk
(refer to Note 6), and liquidity risk (refer to Note 11). Touchstone
continuously monitors these risks and implements strategies to mitigate them
through internal controls and prudent financial management. Cash flow
management is central to the Company's risk strategy, and material changes in
business conditions are reviewed with the Board of Directors to establish
appropriate risk mitigation measures.
The following sensitivity analyses demonstrate the potential impact that a
change in these market risk factors could have on comprehensive income. For
the purposes of the sensitivity analyses, the effect of a variation in a
particular variable is calculated independently of any change in another
variable. In reality, changes in one factor may contribute to changes in
another, which may magnify or counteract the sensitivities. The assumptions
made to derive the changes in the relevant risk variables in each sensitivity
analysis are based on Management's assessment of reasonably possible changes
that could occur at December 31, 2025. The results of the sensitivity analyses
should not be considered to be predictive of future performance.
Commodity price risk
The Company's financial performance is directly influenced by the prices
received for crude oil, NGLs, and natural gas production. Fluctuations in
commodity prices may have a significant impact on the Company's financial
results and cash flows. While the Company does not currently hedge commodity
price risk - partly due to a fixed-price natural gas sales contract covering a
portion of production - Management continuously monitors forward price curves
and may enter into risk management contracts in the future to mitigate price
volatility and support capital planning.
For the year ended December 31, 2025, with all other variables held constant,
a 10 percent increase or decrease in the realized pricing received from
P&NG volumes excluding natural gas volumes associated with the Company's
fixed price contract would have resulted in an approximate $1,086,000 increase
or $1,151,000 decrease in comprehensive income (2024 - $575,000 increase or
$1,418,000 decrease, respectively, based on the effects of supplemental
petroleum profit taxes, which trigger higher tax rates as liquids prices
rise).
Foreign currency risk
The Company is exposed to foreign exchange risk through financial assets and
liabilities denominated in foreign currencies. Touchstone's policy is to
manage foreign currency exposure by matching revenue and expenditures in the
same currency wherever practical. The Company currently does not employ
foreign exchange hedging strategies.
As the Company's operations are based in Trinidad, fluctuations in the TT$
relative to the US$ may materially affect financial results. Although crude
oil sales are priced in US$ benchmarks, the majority of related sales invoices
are paid in TT$, creating exposure to TT$/US$ movements. Additional exposure
arises from US$-denominated bank debt and Debenture balances, including
related interest payments. This risk is partially mitigated by the TT$'s
informal peg to the US$. Furthermore, sales of NGLs and natural gas are
denominated and settled in US$.
The Company is also exposed to foreign exchange fluctuations on C$ and pound
sterling denominated balances, as well as on general and administration
expenses incurred at its Canadian head office and for maintaining its AIM
listing in the United Kingdom. Material movements in C$/US$ or GBP/US$
exchange rates could impact reported results.
For the year ended December 31, 2025, with all other variables held constant,
a 5 percent change in the C$ to US$ and TT$ to US$ exchange rates would have
resulted in an approximate $282,000 increase or decrease in comprehensive
income (2024 - $100,000). A 5 percent increase or decrease in the foreign
exchange rates applicable to TT$, C$ and pounds sterling dollar-denominated
receivables and payables would have resulted in an approximate $23,000
increase or decrease in comprehensive income for the year ended December 31,
2025 (2024 - $78,000).
Interest rate risk
Interest rate risk arises from the potential for changes in market interest
rates to affect the Company's financial results and cash flows. Touchstone is
exposed to interest rate fluctuations on its term loan facilities 2 and 3, and
its revolving loan facility, as the applicable interest rates are reset
annually based on the one-year Secured Overnight Financing Rate (refer to Note
13).
For the year ended December 31, 2025, with all other variables held constant,
a 50-basis point increase or decrease in the interest rates applicable to the
Company's bank debt facilities with floating interest rates would have
resulted in an approximate $144,000 decrease or $139,000 increase in
comprehensive income (2024 - $32,000).
Equity price risk
The Company is exposed to equity price risk related to the valuation of
share-based compensation awards issued under its Omnibus Plan and Deferred
Share Unit Plan. These awards are classified as cash-settled and are
remeasured at each reporting date based on Touchstone's common share price.
Accordingly, fluctuations in the share price may increase or decrease
share-based compensation expense and ultimately affect the cash settlement
obligation.
For the year ended December 31, 2025, with all other variables held constant,
a C$0.05 increase or decrease in the Company's closing common share price
would have resulted in an approximate $158,000 decrease or increase in
comprehensive income (2024 - $55,000).
23. Capital Management
Touchstone actively manages its capital structure to support operations and
strategic initiatives, primarily through equity issuances and bank debt. The
Company's objective is to maintain financial flexibility while managing the
increased leverage introduced by the Acquisition and the 2025 Debenture.
The Company defines its capital structure to include shareholders' equity,
working capital, bank debt and the Debenture. The Debenture forms part of the
Company's overall capital structure and was used to support development
activities and working capital requirements. While the introduction of the
Debenture has increased the Company's financial leverage and future interest
obligations, it also provides potential equity funding through conversion.
As part of its capital management framework, the Company monitors working
capital, net debt, and managed capital to assess liquidity and financial
flexibility. These measures are defined as follows:
· Working capital: Current assets minus current liabilities as
presented in the consolidated balance sheets, excluding the carrying value of
the Debenture. The Company excludes the carrying value of the Debenture from
working capital given the instrument has a 2028 maturity date.
· Net debt: The working capital surplus or deficit plus the principal
(undiscounted) balances of non-current bank debt and the Debenture.
· Managed capital: The sum of net debt and shareholders' equity.
Working capital, net debt, managed capital, net debt to funds flow from
operations ratio and net debt to managed capital ratio are considered non-IFRS
capital management measures and ratios and therefore may not be comparable to
calculations of similar measures presented by other entities.
Touchstone's long-term strategy is to maintain a net debt to trailing
twelve-month funds flow from operations ratio of 2.0 times or less under
normalized commodity price conditions. This ratio may temporarily exceed the
target due to higher capital investment, acquisitions, or weaker commodity
prices. The Company also monitors its net debt to managed capital ratio, with
a long-term target of less than 0.4 to 1, reflecting its strategy to
prioritize equity over debt financing.
Touchstone's internal capital management calculations for years ended December
31, 2025 and 2024 are set forth in the following table.
($000's) Target measure December 31, December 31,
2025 2024
Current assets (39,525) (22,151)
Current liabilities 64,930 23,510
Working capital deficit per consolidated balance sheet 25,405 1,359
Less: current portion of Debenture (9,979) -
Working capital deficit 15,426 1,359
Principal balance of non-current bank debt 44,964 27,750
Principal balance of non-current Debenture 12,500 -
Net debt 72,890 29,109
Shareholders' equity 93,668 68,828
Managed capital 166,558 97,937
Annual funds flow from operations 5,371 16,748
Net debt to funds flow from operations ratio At or < 2.0 times 13.57 1.74
Net debt to managed capital ratio < 0.4 times 0.44 0.30
As at December 31, 2025, the Company's net debt to trailing twelve-month funds
flow from operations ratio of 13.57 times, significantly exceeded the
long-term target. This increase primarily reflected the significant growth in
net debt resulting from the issuance of the Debenture and increased bank debt
to fund the Acquisition and 2025 capital program. In addition, 2025 funds flow
from operations declined to $5,371,000, driven by natural production declines
and a weaker realized commodity price environment.
The net debt to managed capital ratio also rose to 0.44, slightly above the
0.40 target, reflecting the increased reliance on debt for the 2025
Acquisition and capital program.
24. Commitments and Contingencies
Touchstone has contractual obligations incurred in the normal course of
business. These include minimum work commitments under operating agreements
with Heritage, licence payments and exploration commitments pursuant to its
exploration and production licences with the MEEI, and various lease
obligations (refer to Note 12). The following table summarizes the Company's
estimated minimum contractual payments as at December 31, 2025.
($000's) Total Estimated payments due by year
2026 2027 2028 Thereafter
Operating agreements 18,864 6,684 6,942 2,106 3,132
Exploration agreements 58,415 11,144 11,750 22,477 13,044
Other commitments 1,161 302 232 177 450
Minimum payments 78,440 18,130 18,924 24,760 16,626
Under operating agreements with Heritage, the Company is required to fulfill
minimum work commitments on an annual basis over each licence term. With
respect to these obligations, Touchstone is required to drill seven
development wells in 2026. The Company has committed to drilling four
development wells in 2026 and is currently engaged in discussions with
Heritage to explore alternative satisfaction methods for the remaining three
well commitment.
As of December 31, 2025, Touchstone is committed to drilling an aggregate ten
exploration wells across its exploration properties by the end of 2029. Two of
these wells are required on the Ortoire block, where the exploration portion
of the licence expires in July 2026. Touchstone and Heritage are in
discussions with the MEEI to extend the licence for an additional three years.
The Company may be involved in a limited number of legal claims arising in the
normal course of operations. Such claims are not expected to have a material
impact on Touchstone's results of operations or cash flows.
25. Related Parties
Key Management Personnel Compensation
Touchstone has determined that the key management personnel of the Company
consist of its directors and executive officers. The following table
summarizes the compensation paid or payable to these individuals during the
years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Salaries and benefits included in general and administration expense 1,225 1,516
Executive severance included in general and administration expense 417 -
Director fees included in general and administration expense 316 405
Share-based compensation expense (Note 20) 103 1,244
Capitalized salaries, benefits and share-based compensation 39 47
Key management compensation 2,100 3,212
Other Related Party Transactions
The Company's Chief Executive Officer, Chief Financial Officer and its
Trinidad-based director serve as independent board members of a separate
Trinidadian charitable entity established by Touchstone. For the year ended
December 31, 2025, the Company contributed $30,000 to this entity (2024 -
$30,000).
26. Supplemental Disclosures
Presentation in the Statements of Income
The Company prepares its statements of income primarily by nature of item.
Employee compensation expense is disaggregated between production-level
activities (operating expense) and administrative functions (general and
administration expense).
The following table details the amount of employee compensation expense
included in operating and general and administration expense line items in the
statements of income for the years ended December 31, 2025 and 2024.
($000's) Year ended December 31,
2025 2024
Operating expense 2,335 1,718
General and administration expense 4,757 4,485
Employee compensation expense 7,092 6,204
Presentation in the Statements of Cash Flows
The following tables provide a breakdown of non-cash working capital changes
and other non-cash items presented in the consolidated statements of cash
flows.
Net change in non-cash working capital ($000's) Year ended December 31,
2025 2024
Source (use) of cash:
Accounts receivable (9,282) (953)
Inventory 63 6
Prepaid expenses 613 (753)
Accounts payable and accrued liabilities 11,602 1,241
Consideration payable 8,525 -
Income taxes payable 743 (234)
Transfer from non-current other assets 14 106
Transfer to (from) non-current other liabilities 8 (383)
Transfer to (from) non-current lease liabilities 22 (25)
Foreign exchange on working capital balances 166 498
Net change in non-cash working capital 12,474 (497)
Related to:
Operating activities 14,759 (3,567)
Investing activities (2,299) 2,964
Financing activities 14 106
Net change in non-cash working capital 12,474 (497)
Other non-cash items ($000's) Year ended December 31,
2025 2024
Lease modification (Note 12) (32) (50)
Debenture issuance expense (Note 14) 167 -
Debenture revaluation (Note 14) (1,627) -
Accretion on bank debt (Note 13) 507 67
Accretion on decommissioning liabilities (Note 15) 345 226
Other (48) -
Other non-cash items (688) 243
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