REG - Touchstone Explrtn. - Preliminary 2025 Guidance

Touchstone ExplorationAnnouncement

09/12/2024 07:00

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RNS Number : 2543P  Touchstone Exploration Inc.  09 December 2024

THIS ANNOUNCEMENT RELATES TO THE DISCLOSURE OF INFORMATION THAT QUALIFIED OR
MAY HAVE QUALIFIED AS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE
MARKET ABUSE REGULATION (EU) 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.

 

PRELIMINARY 2025 GUIDANCE

 

CALGARY, ALBERTA (December 9, 2024) - Touchstone Exploration Inc.
("Touchstone", "we", "our" or the "Company") (TSX, LSE: TXP) announces its
preliminary annual 2025 capital budget and financial guidance.

 

Paul Baay, President and Chief Executive Officer, commented:

 

"Our 2025 strategy focuses on driving sustainable growth by building on the
success of our foundational Cascadura asset. We aim to fully leverage the
extensive infrastructure and flowline installations completed in 2024 to
unlock the field's potential. Our preliminary 2025 capital budget focuses on
executing our "drill-to-fill" strategy, which involves drilling four gross
Cascadura development wells to increase production and optimize asset
performance. This approach will enable us to capitalize on the existing
processing capacity established at our Cascadura facility.

 

We intend to fund this program through operating cash flows generated from our
assets, complemented by a near-term increase in our debt facilities. With
prudent financial management, we expect to exit 2025 with a net debt level
consistent with that of 2024, demonstrating our commitment to maintaining
financial stability.

 

I want to extend my gratitude to our employees, shareholders, and stakeholders
for their unwavering support and trust. At Touchstone, we remain dedicated to
delivering operational excellence, guided by a culture that prioritizes safety
above all else. Building on the achievements of 2024 - including substantial
production growth and the expansion of critical infrastructure to enhance
operational efficiencies - we are excited to carry this momentum into 2025."

 

2025 Budget Highlights

·     Planned expansion of debt facilities - We plan to increase our
existing debt capacity by $10 million in the first quarter of 2025 to manage
the forecasted timing of the 2025 capital program. No firm commitment is
currently in place with our existing lender.

·     Capital budget allocation - We project to invest approximately $23
million in capital expenditures for 2025. Of this, approximately $20 million
is expected to be directed toward our Cascadura field. The remaining $3
million is allocated to exploration licence payments and well optimization
operations across our crude oil properties.

·      Drilling operations - To further optimize our existing Cascadura
infrastructure, our preliminary 2025 capital budget includes the drilling of
four gross (3.2 net) Cascadura development wells. Two wells are expected to be
drilled from pad B in the first quarter of 2025, followed by two additional
wells from pad C in the third quarter of 2025.

·    Production growth - We project a mid-point annual average production
of 7,000 boe/d for 2025, reflecting an estimated 19 percent increase from our
latest 2024 guidance. Annual production is expected to range between 6,700 and
7,300 boe/d, with approximately 77 percent of production being natural gas.

·    Funds flow generation and balance sheet strength - Our 2025 budget
is projected to generate approximately $22 million in funds flow from
operations. This will result in a net debt to annual funds flow from
operations ratio of 1.36 times, well within the Company's internal target of
2.0 times or below. Net debt at the end of 2025 is expected to be comparable
with our forecasted 2024 closing position, underscoring our commitment to
maintaining financial discipline during a period of growth.

2025 Budget and Guidance Overview

 

The preliminary 2025 capital budget and financial guidance presented herein is
contingent on increasing the Company's existing debt capacity by $10 million
in the first quarter of 2025. Currently there is no firm commitment from our
existing lender, and accordingly, the 2025 budget and preliminary guidance may
be subject to change, and such changes may be material. The Company will
provide further updates in due course.

 

Following a 2024 year of growth and land acquisitions, Touchstone's Board of
Directors has approved a preliminary 2025 capital budget of $23 million to
drill, complete, and tie-in four gross (3.2 net) Cascadura development wells.
The Cascadura-4 development well, initially planned for December 2024, has
been deferred to the first quarter of 2025 to align with our updated drilling
schedule and represents one of the four gross Cascadura development wells.

 

The preliminary 2025 drilling program includes two gross Cascadura development
wells to be drilled from the pad B location in the first quarter, with
production expected to come online in the second quarter of 2025.
Additionally, two more gross wells are planned for the third quarter from the
Cascadura C site, with production anticipated to commence in the fourth
quarter of 2025. These investments are expected to deliver 2025 annualized
average daily production of 6,700 to 7,300 boe/d, with a production mix
comprising approximately 77 percent natural gas and 23 percent crude oil and
liquids.

 

Assuming a midpoint forecasted average production of 7,000 boe/d and an annual
Brent benchmark price of $71.00 per barrel for crude oil and liquids,
Touchstone anticipates generating approximately $22 million in funds flow from
operations. With the approved $23 million capital budget, the Company projects
exiting 2025 with a net debt of $30 million, resulting in a net debt-to-annual
funds flow from operations ratio of 1.36 times, reflecting our commitment to
balancing growth and financial discipline.

 

2025 Guidance Summary((1))

 

 Annual Guidance                               Year ending December 31, 2025

 Capital expenditures((2)) ($000's)            23,000

 Average daily production((3)) (boe/d)         6,700 to 7,300
 % natural gas((4))                            77%
 % crude oil and liquids((4))                  23%

 Funds flow from operations((5)) ($000's)      22,000

 Net debt - end of year((2)(5)) ($000's)       30,000

 

Notes:

(1)   Forward-looking statement representing Management estimates.
Additional information regarding the assumptions used are provided in the
"Advisories - Assumptions for 2025 Guidance" section herein.

(2)   Non-GAAP financial measure. See the "Advisories - Non-GAAP Financial
Measures" section herein for additional information on the definitions and
calculation of these measures.

(3)   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. See the "Advisories - Oil and Natural Gas
Measures" section herein for further information.

(4)   See the "Advisories - Product Type Disclosures" section herein for
further information.

(5)   The financial performance measures included in the Company's 2025
preliminary guidance are based on the midpoint of the average production
forecast.

 

Production Volumes

In November 2024, we attained average net sales volumes of 6,924 boe/d
comprised of:

·      average net natural gas sales volumes of 28 MMcf/d (4,668 boe/d);
and

·      average net crude oil and natural gas liquid sales volumes of
1,626 bbls/d.

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 Baay, President and Chief Executive
Officer                       Tel: +1 (403) 750-4405

Scott Budau, Chief Financial Officer

 

Shore Capital (Nominated Advisor and Joint Broker)

Daniel Bush / Toby Gibbs / Tom
Knibbs
Tel: +44 (0) 207 408 4090

 

Canaccord Genuity (Joint Broker)

Adam James / Charlie
Hammond
Tel: +44 (0) 207 523 8000

 

FTI Consulting (Financial PR)

Nick Hennis / Ben Brewerton
 
Tel: +44 (0) 203 727 1000

Email: touchstone@fticonsulting.com (mailto:touchstone@fticonsulting.com)

 

Advisories

 

This announcement contains information that qualified or may have qualified as
inside information for the purposes of Article 7 of the Market Abuse
Regulation (EU) 596/2014 ("MAR") as it forms part of UK domestic law by virtue
of the EUWA ("UK MAR"), encompassing information relating to the Company's
preliminary annual 2025 capital budget and financial guidance. For the
purposes of UK MAR and Article 2 of the binding technical standards published
by the Financial Conduct Authority in relation to MAR as regards Commission
Implementing Regulation (EU) 2016/1055, the person responsible for the release
of this announcement is Paul Baay, President and Chief Executive Officer.

 

Currency

 

All financial figures are stated in United States dollars unless otherwise
noted.

 

Working Interest

 

Touchstone has an 80 percent operating working interest in the Cascadura
field, which is located on the Ortoire block onshore in the Republic of
Trinidad and Tobago. Heritage Petroleum Company Limited holds the remaining 20
percent working interest. All production volumes disclosed herein are based on
Company working interest volumes before royalty burdens.

 

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", "plan",
"anticipate", "believe", "intend", "maintain", "continue to", "pursue",
"design", "result in", "sustain" "estimate", "potential", "growth",
"near-term", "long-term", "forecast", "contingent" 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; the Company's intention to
expand its current credit capacity; the focus of Touchstone's preliminary 2025
capital plan, including pursuing developmental drilling activities and
optimizing existing natural gas and associated liquids infrastructure
capacity; anticipated 2025 capital expenditures including estimations of costs
and inflation incorporated therein; expected drilling activities, including
locations, production therefrom and the timing thereof; anticipated 2024 and
2025 annual average production and production by product type; forecasted
production decline rates; forecasted 2025 average Brent reference price and
the Company's budgeted realized price in relation thereto; forecasted 2025
royalty, operating, general and administration, cash finance and income tax
expenses; anticipated 2025 funds flow from operations; anticipated 2024 and
2025 exit net debt; and Touchstone's current and future financial position,
including the sufficiency of resources to fund future capital expenditures and
maintain financial liquidity. 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. The assumptions used to
generate this forward-looking formation and statements include, among other
things, the assumption that the Company will be able to increase its current
credit capacity by $10 million in the first quarter of 2025.

 

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 2023
Annual Information Form dated March 20, 2024 which is available under the
Company's profile on SEDAR+ (www.sedarplus.ca (http://www.sedarplus.ca/) ) and
on the Company's 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.

 

This announcement contains future-oriented financial information and financial
outlook information (collectively, "FOFI") about Touchstone's prospective
results of operations and production included in its preliminary annual 2025
capital budget and financial guidance, all of which are subject to the same
assumptions, risk factors, limitations, and qualifications as set forth in the
paragraphs above. The FOFI contained in this announcement was approved by
Management as of the date of this announcement and was provided for the
purpose of providing further information about Touchstone's future business
operations. This information has been provided for illustration only and, with
respect to future periods, is based on budgets and forecasts that are
speculative and are subject to a variety of contingencies and may not be
appropriate for other purposes. Touchstone and its Management believe that
FOFI has been prepared on a reasonable basis, reflecting Management's best
estimates and judgments, and represents, to the best of Management's knowledge
and opinion, the Company's expected course of action. However, because this
information is highly subjective, it should not be relied on as necessarily
indicative of future results. Touchstone disclaims any intention or obligation
to update or revise any FOFI contained in this announcement, whether as a
result of new information, future events or otherwise, unless required
pursuant to applicable law. Readers are cautioned that the FOFI contained in
this announcement should not be used for purposes other than for which it is
disclosed herein, and the financial outlook information contained herein is
not conclusive and is subject to change. Changes in the intended increase in
the Company's credit facility and the timing thereof, variations in forecasted
crude oil and liquids prices, differences in the amount and timing of capital
expenditures, and variances in average production estimates and decline rates
can have a significant impact on the key performance measures included in the
guidance disclosed herein. Management does not have firm commitments for its
intended increase in debt capacity nor for the costs, expenditures, prices or
other financial assumptions used to prepare the financial outlook or assurance
that such operating results will be achieved and, accordingly, the complete
financial effects of the forecasted costs, expenditures, prices and operating
results are not objectively determinable. The actual results of the Company's
operations and the resulting financial results will vary from the amounts set
forth in this announcement and such variations may be material.

 

Assumptions for 2025 Guidance

 

The preliminary 2025 capital budget and financial guidance is predicated on
the Company securing an increase of $10 million in its existing credit
capacity during the first quarter of 2025. While discussions are underway,
there is no assurance that the Company will successfully secure this increase,
either in the amount or within the timeframe envisioned by Management.
Consequently, the 2025 budget and preliminary guidance disclosed herein are
subject to potential revision, and such revisions could be material.

 

Production estimates provided are expressed as anticipated average production
over the 2025 calendar year. In formulating these estimates, Touchstone
evaluated historical drilling, completion, and production results, as well as
prior-year decline rates, while factoring in the expected impact of the
Company's planned 2025 drilling, completion and well tie-in activities.

 

The key assumptions underpinning the forecast for average daily production,
funds flow from operations, and net debt are outlined below. These metrics are
based on the midpoint of 2025 average production guidance of 7,000 boe/d.

 

 Annual Production Guidance         Units   Year ending December 31, 2025

 Midpoint average daily production
 Light and medium crude oil         bbls/d  1,092
 Heavy crude oil                    bbls/d  8
 Crude oil                          bbls/d  1,100
 NGLs                               bbls/d  510
 Crude oil and liquids              bbls/d  1,610
 Conventional natural gas           Mcf/d   32,340
 Midpoint average daily production  boe/d   7,000

 

 Annual Financial Guidance                                 Units    Year ending December 31, 2025

 Average Brent crude oil price                             $/bbl    71.00
 % realized discount to Brent price                        %        17
 Average realized natural gas price                        $/MMbtu  2.29
 Realized commodity price((1))                             $/boe    25.00

 Expenses
 Royalties as a % of petroleum and natural gas sales((1))  %        21
 Operating expenses((1))                                   $/boe    4.30
 General and administration expenses((1))                  $/boe    4.40
 Cash finance expenses((1))                                $/boe    1.20
 Current income tax expenses((1))                          $/boe    1.10

 

Note:

(1)   Non-GAAP financial measure. See the "Advisories - Non-GAAP Financial
Measures" section herein for further information.

 

Changes in the Company's available bank debt capacity, variations in
forecasted crude oil and liquids prices, differences in the amount and timing
of capital expenditures, and variances in average production estimates and
decline rates can have a significant impact on the key performance measures
included in the guidance disclosed herein. The actual results of the Company's
operations and the resulting financial results will vary from the amounts set
forth in this announcement and such variations may be material.

 

Using the midpoint of the Company's production guidance and holding all other
assumptions constant, a $5/bbl increase (decrease) in the forecasted average
Brent crude oil price for 2025 would increase funds flow from operations by
approximately $1.6 million (decrease by $1.6 million). Assuming capital
expenditures and other variables are unchanged, the impact on funds flow from
operations is estimated to result in an equivalent decrease (increase) in
forecasted year end 2025 net debt.

 

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.

 

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 by subtracting current liabilities from current assets
as they appear on the applicable consolidated balance sheet. Net debt is
calculated by summing the Company's working capital and the principal
(undiscounted) long-term amount of senior secured debt and is most directly
comparable to total liabilities disclosed in the Company's consolidated
balance sheets.

 

Net debt to funds flow from operations ratio

 

The Company monitors its capital structure using a net debt to funds flow from
operations ratio, which is a non-GAAP ratio and a capital management measure
calculated as the ratio of the Company's net debt to trailing twelve months
funds flow from operations for any given period. The following table is a
calculation of the Company's projected net debt to annual funds flow from
operations ratio disclosed herein.

 

                                                         December 31,

                                                          2025 Guidance

 Net debt((1)(2)) ($000's)                               30,000
 Annual funds flow from operations((1)(2)) ($000's)      22,000
 Net debt to funds flow from operations ratio            1.36 times

 

Notes:

(1)   Forward-looking statement representing Management estimates.
Additional information regarding the assumptions used are provided in the
"Advisories - Assumptions for 2025 Guidance" section herein.

(2)   The financial performance measures included in the Company's 2025
preliminary guidance are based on the midpoint of the average production
forecast.

 

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.

 

Royalties as a percentage of petroleum and natural gas sales - is comprised of
royalties as determined in accordance with IFRS, divided by petroleum and
natural gas sales as determined in accordance with IFRS.

 

Operating expenses per boe - is comprised of operating expenses as determined
in accordance with IFRS, divided by the Company's total production volumes for
the period.

 

General and administration expenses per boe - is comprised of general and
administration expenses as determined in accordance with IFRS, divided by the
Company's total production volumes for the period.

 

Cash finance expenses per boe - is comprised of cash finance expenses, divided
by the Company's total production volumes for the period. Cash finance
expenses are calculated as net finance expenses as determined in accordance
with IFRS, less accretion on bank debt and accretion on decommissioning
obligations, both of which are non-cash in nature.

 

Current income tax expense per boe - is comprised of current income tax
expenses as determined in accordance with IFRS, divided by the Company's total
production volumes for the period.

 

For further historical 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 and nine months ended September 30, 2024
accompanying our September 30, 2024 unaudited interim condensed consolidated
financial statements, both of which are available on our website
(www.touchstoneexploration.com (http://www.touchstoneexploration.com) ) and
under our SEDAR+ profile (www.sedarplus.ca (http://www.sedarplus.ca) ). Our
Management's discussion and analysis 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.

 

Product Type Disclosures

 

This announcement includes references to crude oil, NGLs, crude oil and
liquids, natural gas, and average daily production volumes. Under National
Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("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 crude oil and medium crude oil" and "heavy crude
oil" combined product types; references to "NGLs" refer to condensate; and
references to "natural gas" refer to the "conventional natural gas" product
type, all as defined in the instrument. In addition, references to "crude oil
and liquids" herein include crude oil and NGLs.

 

For disclosure regarding the Company's estimated midpoint average daily 2025
annual production by product type, see the "Advisories - Assumptions for 2025
Guidance" section herein.

 

The Company's average production for November 2024 consist of the following
product types as defined in NI 51-101 using a conversion of 6 Mcf to 1 boe
where applicable.

 

 Period         Light and Medium Crude Oil (bbls/d)  Heavy Crude Oil  Natural Gas Liquids (bbls/d)  Conventional Natural Gas (Mcf/d)  Total Oil Equivalent (boe/d)

                                                     (bbls/d)

 November 2024  1,198                                62               366                           28,010                            6,294

 

For historical information regarding historical production product disclosures
in accordance with NI 51-101, please refer to the "Advisories - Product Type
Disclosures" section in the Company's most recent Management's discussion and
analysis for the three and nine months ended September 30, 2024 accompanying
our September 30, 2024 unaudited interim condensed consolidated financial
statements, both of which are available on our website
(www.touchstoneexploration.com (http://www.touchstoneexploration.com) ) and
under our SEDAR+ profile (www.sedarplus.ca (http://www.sedarplus.ca) ).

 

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 might be misleading, particularly if
used in isolation. As well, given that the value ratio, based on the current
price of crude oil to natural gas, is significantly different from the 6:1
energy equivalency ratio, using a 6:1 conversion ratio may be misleading as an
indication of value.

 

Abbreviations

 

The following abbreviations referenced in this announcement have the meanings
set forth below:

 

bbls(s)              barrel(s)

bbls/d               barrels per day

Mbbls               thousand barrels

boe                  barrels of oil equivalent

boe/d               barrels of oil equivalent per day

Mcf                  thousand cubic feet

Mcf/d               thousand cubic feet per day

MMBtu              million British thermal units

NGLs                natural gas liquids

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