REG - Touchstone Explrtn. - ANNUAL 2024 FINANCIAL AND OPERATING RESULTS
20/03/2025 07:15
For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20250320:nRST3866Ba&default-theme=true
RNS Number : 3866B Touchstone Exploration Inc. 20 March 2025
ANNUAL 2024 FINANCIAL AND OPERATING RESULTS
CALGARY, ALBERTA (March 20, 2025) - 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,
2024. Selected financial information is outlined below and should be read in
conjunction with our December 31, 2024 audited consolidated financial
statements and related Management's discussion and analysis, both of which are
available under our profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and on our 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.
Paul Baay, President and Chief Executive Officer, commented:
"In 2024, Touchstone maintained its growth trajectory, achieving record annual
production and delivering net earnings, driven by a full year of Cascadura
production. We successfully drilled, completed, and brought online two wells
at the Cascadura C pad, alongside the installation of a new natural gas
separator. With most infrastructure now in place, we are well-positioned to
accelerate the transition from drilling to production for future wells.
We continued expanding our Trinidad onshore acreage and announced a strategic
acquisition, which we are actively working to finalize. The amended loan
agreement and related security documents are in progress, with completion
expected in the second quarter of 2025. Looking ahead, we will strategically
evaluate growth opportunities, factoring in natural gas pricing dynamics while
leveraging our extensive land portfolio and infrastructure to enhance
efficiency and reduce costs. Above all, safety remains our top priority,
ensuring the well-being of our people and the integrity of our operations."
Annual 2024 Financial and Operating Highlights
· Record Production: Achieved annual average production volumes of
5,734 boe/d, a 44 percent increase from 3,981 boe/d in 2023. Production
consisted of 1,220 bbls/d of crude oil, 132 bbls/d of NGLs, and 26.3 MMcf/d of
natural gas.
· Revenue: Petroleum and natural gas sales totaled $57.47 million,
up 19 percent from $48.10 million in 2023. The increase was driven by a full
year of Cascadura production, with natural gas sales rising 77 percent,
partially offset by a 3 percent decline in crude oil and NGL sales.
· Financial Performance:
- Funds flow from operations: $16.75 million, representing a
year-over-year increase of 22 percent from $13.73 million recorded in 2023.
- Operating netback: $32.89 million or $15.68 per boe (2023 - $26.22
million or $18.04 per boe).
- Net earnings: $8.27 million ($0.04 per basic share, $0.03 per
diluted share), compared to a net loss of $20.60 million ($0.09 per basic
share) in 2023, which included $21.39 million in net non-financial asset
impairment expenses.
· Capital Program: Invested $23.68 million in development and
infrastructure, including four gross (3.6 net) development wells and key
upgrades to the Cascadura natural gas processing facility.
· Financial Position: Ended the year with cash of $6.7 million and
net debt of $29.11 million, resulting in a net debt-to-funds flow from
operations ratio of 1.74 times.
· Strategic Portfolio Optimization:
- Divested three non-core properties and acquired the Balata East
block, which supports Cascadura NGL marketing.
- Expanded onshore Trinidad acreage by approximately 103,000 working
interest acres, securing exploration and production licences within the Herra
Formation fairway.
· Safety: Maintained a strong focus on responsible operations, with
one lost-time injury recorded in 2024.
· Proposed Acquisition: In December 2024, we signed an agreement to
acquire full ownership of a Trinidad-based private entity (the "Proposed
Acquisition"), which holds a 65 percent operating working interest in the
onshore Central Block exploration and production licence, along with four
producing natural gas wells and an 80 MMcf/d gas processing plant in Trinidad.
Fourth Quarter 2024 Financial and Operating Highlights
· Production: Average quarterly production increased to 5,287 boe/d
(73 percent natural gas), compared to 5,211 boe/d (75 percent natural gas) in
the third quarter of 2024. The increase reflected incremental output from the
Cascadura-2ST1 and Cascadura-3ST1 wells brought online in November 2024,
partially offset by natural declines in Cascadura field production.
· Revenue: Petroleum and natural gas sales totaled $13.54 million,
consistent with the $13.25 million recorded in the previous quarter.
- Crude oil sales: $7.53 million from average production of 1,310
bbls/d at a realized price of $62.50 per barrel.
- NGL sales: $0.7 million from average production of 121 bbls/d at a
realized price of $62.05 per barrel.
- Natural gas sales: $5.32 million from average production of 23.1
MMcf/d (3,856 boe/d) at a realized price of $2.50 per Mcf.
· Operating Netback: Generated $6.89 million in operating netback,
down 7 percent from the third quarter of 2024. Quarterly operating netbacks
averaged $14.17 per boe, an 8 percent decline from $15.46 per boe in the prior
quarter, primarily due to a 41 percent increase in operating expenses driven
by revised crude oil field historical head licence expenses.
· Funds Flow from Operations: Increased to $3.61 million from $3.02
million in the previous quarter, as lower operating netbacks were offset by
reductions in general and administrative and transaction expenses.
· Net Loss: Recorded a net loss of $542,000 ($0.00 per basic
share), primarily due to $2.31 million in pre-tax Ortoire exploration asset
impairment expenses and higher depletion expenses following Cascadura reserves
reductions.
· Capital Investments: Invested $3.11 million in the quarter,
primarily focused on the completion of the flowline from the Cascadura C site
to the Cascadura natural gas processing facility and pre-drill expenditures
relating to the Cascadura-4 well spudded in January 2025.
· Land Expansion: Continued to expand our Trinidad onshore acreage
with the execution of an exploration and production licence for the Rio Claro
block.
Post Period-end Operating Highlights
· Drilling Update: Drilling at the Cascadura-4 development location
resumed on March 12, 2025. We are currently preparing to run intermediate
casing.
· Production Update: In February 2025, we delivered average net
sales volumes of 4,274 boe/d, comprising:
- average net natural gas sales volumes of 18.5 MMcf/d (3,083 boe/d);
and
- average net crude oil and natural gas liquid sales volumes of 1,191
bbls/d.
· Cascadura-3ST1 Optimization: Since coming onstream in November
2024, the well has been flowing through 3.5-inch tubing at various wellhead
choke sizes. In February 2025, Cascadura-3ST1 produced approximately 90 gross
bbls/d of total fluid with a 47 percent oil cut. A workover is planned to
install a bottom-hole pump and optimize production in the second quarter of
2025. As of February 2025, the well has produced approximately 11,900 gross
barrels of crude oil.
· Acquisition Debt Financing: Touchstone and its lender are in
advanced negotiations to secure funding to finance the acquisition and
development of the Proposed Acquisition through two additional six-year term
loan facilities totaling $38.2 million. An amended loan agreement and related
security documents are currently being drafted.
2025 Outlook and Guidance
We remain focused on financial discipline and maximizing value from our
development and exploration assets. Our near-term strategy is to increase cash
flow through the development of the Cascadura field, leveraging the processing
capacity established in 2024.
On December 9, 2024, Touchstone issued a news release announcing the approval
of our preliminary financial and operating guidance for 2025. Given the
material nature of the Proposed Acquisition, we intend to provide updated
guidance following its expected closing, which the Company continues to
anticipate occurring in the second quarter of 2025.
2024 Financial and Operating Results Overview
Three months ended December 31, % change((4)) Year ended December 31, % change((4))
2024 2023 2024 2023
Operational
Average daily production
Crude oil((1)) (bbls/d) 1,310 1,133 16 1,220 1,181 3
NGLs((1)) (bbls/d) 121 622 (81) 132 201 (34)
Crude oil and liquids((1)) (bbls/d) 1,431 1,755 (18) 1,352 1,382 (2)
Natural gas((1)) (Mcf/d) 23,136 40,491 (43) 26,290 15,593 69
Average daily production (boe/d)((2)) 5,287 8,504 (38) 5,734 3,981 44
Average realized prices((3))
Crude oil((1)) ($/bbl) 62.50 72.26 (14) 67.91 67.80 -
NGLs((1)) ($/bbl) 62.05 72.92 (15) 69.10 74.07 (7)
Crude oil and liquids((1)) ($/bbl) 62.47 72.49 (14) 68.03 68.72 (1)
Natural gas((1)) ($/Mcf) 2.50 2.43 3 2.48 2.36 5
Realized commodity price ($/boe)((2)) 27.85 26.53 5 27.39 33.10 (17)
Production mix (% of production)
Crude oil and liquids((1)) 27 21 24 35
Natural gas((1)) 73 79 76 65
Operating netback ($/boe)((2))
Realized commodity price((3)) 27.85 26.53 5 27.39 33.10 (17)
Royalty expense((3)) (6.59) (5.53) 19 (6.61) (8.38) (21)
Operating expense((3)) (7.09) (3.46) 100 (5.10) (6.68) (24)
Operating netback((3)) 14.17 17.54 (19) 15.68 18.04 (13)
Notes:
(1) Refer "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 financial measure. Refer to "Advisories - Non-GAAP Financial
Measures" for further information.
(4) Percentages have been rounded to the nearest whole number and limited
to increases or decreases of 100 percent.
Three months ended December 31, % change((2)) Year ended December 31, % change((2))
2024 2023 2024 2023
Financial
($000's except per share amounts)
Petroleum and natural gas sales 13,543 20,759 (35) 57,470 48,098 19
Cash from operating activities 822 8,512 (90) 13,181 12,743 3
Funds flow from operations 3,614 10,489 (66) 16,748 13,730 22
Net (loss) earnings (542) (21,236) (97) 8,272 (20,598) n/a
Per share - basic (0.00) (0.09) n/a 0.04 (0.09) n/a
Per share - diluted (0.00) (0.09) n/a 0.03 (0.09) n/a
Exploration capital expenditures 426 595 (28) 1,046 17,638 (94)
Development capital expenditures 2,680 591 100 22,633 1,311 100
Capital expenditures((1)) 3,106 1,186 100 23,679 18,949 25
Working capital deficit((1)) 1,359 7,581 (82)
Principal long-term bank debt 27,750 15,000 85
Net debt((1)) - end of period 29,109 22,581 29
Share Information (000's)
Weighted avg. shares outstanding:
Basic 236,461 234,213 1 235,509 233,487 1
Diluted 236,461 234,213 1 236,492 233,487 1
Outstanding shares - end of period 236,461 234,213 1
Notes:
(1) Specified financial measure. Refer to "Advisories - Non-GAAP Financial
Measures" for further information.
(2) Percentages have been rounded to the nearest whole number and limited
to increases or decreases of 100 percent.
2024 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, 2024. 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. The
reserves information presented in the AIF is consistent with the details
disclosed in Touchstone's announcement issued March 6, 2025. These documents
are available online under our profile on SEDAR+ (www.sedarplus.ca
(http://www.sedarplus.ca/) ) and on our 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 Baay, President and Chief Executive
Officer Tel: +1 (403) 750-4405
Scott Budau, Chief Financial Officer
Brian Hollingshead, EVP Engineering and Business Development
James Shipka, EVP Asset Development and HSE
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 / Lucy
Wigney 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
updated 2024 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.
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 focus of the Company's 2025
operating and capital plans, including driving future growth, pursuing
developmental drilling activities, optimizing current production and utilizing
existing natural gas and liquids infrastructure capacity; the completion of
the Proposed Acquisition, including the expected benefits and synergies
therefrom, the timing thereof and the method of funding; the Company's
expectation of executing an amended loan agreement to finance the acquisition
and development of the Proposed Acquisition; 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.
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 2024
Annual Information Form dated March 19, 2025 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.
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 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.
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
net earnings and 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, 2024 accompanying
our December 31, 2024 audited 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.
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.
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.
The Company's average production for February 2025 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)
February 2025 1,103 55 33 18,499 4,274
For further information regarding specific product disclosures in accordance
with NI 51-101, including 2024 and 2023 average production information by
product type, please refer to the "Advisories - Product Type Disclosures"
section in the Company's most recent Management's discussion and analysis for
the three months and year ended December 31, 2024 accompanying our December
31, 2024 audited 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/) ).
Abbreviations
The following abbreviations are referenced in this announcement:
bbls(s)
barrel(s)
Mcf thousand cubic feet
bbls/d barrels per day
Mcf/d thousand cubic feet per day
boe barrels of oil
equivalent
MMcf million cubic feet
boe/d barrels of oil equivalent per
day MMcf/d million cubic feet
per day
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, 2023
2024
Assets
Current assets
Cash 6,744 8,186
Accounts receivable 6 13,805 12,852
Inventory 85 91
Prepaid expenses 1,517 764
Assets held for sale 8 - 677
22,151 22,570
Exploration and evaluation assets 7 3,743 5,030
Property, plant and equipment 8 122,382 108,148
Restricted cash 13 924 785
Other assets 10 108 334
Abandonment fund 14 2,965 2,081
Total assets 152,273 138,948
Liabilities
Current liabilities
Accounts payable and accrued liabilities 11 16,254 15,013
Income taxes payable 21 6 240
Current portion of bank debt 13 7,250 13,000
Liabilities associated with assets held for sale 14 - 1,898
23,510 30,151
Lease liabilities 12 4,368 2,888
Bank debt 13 27,541 14,977
Decommissioning liabilities 14 9,985 9,733
Share-based compensation liabilities 19 117 -
Deferred income taxes 21 17,924 21,433
Total liabilities 83,445 79,182
Shareholders' equity
Shareholders' capital 15 115,610 114,965
Contributed surplus 7,069 6,166
Other comprehensive loss (13,882) (13,124)
Deficit (39,969) (48,241)
Total shareholders' equity 68,828 59,766
Total liabilities and shareholders' equity 152,273 138,948
Going Concern (Note 1)
Commitments and contingencies (Note 24)
Subsequent events (Notes 6 and 27)
See accompanying notes to these consolidated financial statements.
Approved on behalf of the Board of Directors:
(signed) "John D.
Wright"
(signed) "Stanley T. Smith"
John D.
Wright
Stanley T. Smith
Chair of the Board of Directors and
Director Chair of the
Audit Committee and Director
Touchstone Exploration Inc.
Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss)
Stated in thousands of United States dollars (except per share amounts)
Year ended December 31,
Note 2024 2023
Revenue
Petroleum and natural gas sales 16 57,470 48,098
Less: royalties (13,876) (12,173)
Petroleum and natural gas revenue, net of royalties 43,594 35,925
Other revenue 63 64
Total revenue 43,657 35,989
Expenses
Operating 26 10,704 9,705
General and administration 26 10,154 9,451
Net finance 17 3,018 2,453
Transaction 18 2,023 -
Exploration 248 -
Gain on asset dispositions 8 (2,213) (800)
Foreign exchange gain 22 (54) (196)
Share-based compensation 19 1,589 1,243
Depletion and depreciation 8 9,501 6,009
Impairment 9 2,659 21,389
Other 20 - (552)
Total expenses 37,629 48,702
Earnings (loss) before income taxes 6,028 (12,713)
Provision for income taxes
Current expense 21 1,161 1,106
Deferred (recovery) expense 21 (3,405) 6,779
Total income tax (recovery) expense (2,244) 7,885
Net earnings (loss) 8,272 (20,598)
Currency translation adjustments (758) 393
Comprehensive income (loss) 7,514 (20,205)
Net earnings (loss) per common share
Basic 15 0.04 (0.09)
Diluted 15 0.03 (0.09)
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 2024 2023
Shareholders' capital
Balance, beginning of year 114,965 114,635
Issued under share-based compensation plans 15 645 330
Balance, end of year 115,610 114,965
Contributed surplus
Balance, beginning of year 6,166 4,905
Recognized under share-based compensation plans 15 (230) (120)
Share-based compensation expense 19 1,061 1,243
Share-based compensation capitalized 19 72 138
Balance, end of year 7,069 6,166
Other comprehensive loss
Balance, beginning of year (13,124) (13,517)
Other comprehensive (loss) income (758) 393
Balance, end of year (13,882) (13,124)
Deficit
Balance, beginning of year (48,241) (27,643)
Net earnings (loss) 8,272 (20,598)
Balance, end of year (39,969) (48,241)
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 2024 2023
Operating activities
Net earnings (loss) 8,272 (20,598)
Items not involving cash from operations:
Gain on asset dispositions 8 (2,213) (800)
Unrealized foreign exchange loss (gain) 22 121 (194)
Share-based compensation expense 19 1,589 1,243
Depletion and depreciation expense 8 9,501 6,009
Impairment expense 9 2,659 21,389
Non-cash finance expense (income) 26 243 (80)
Deferred income tax (recovery) expense 21 (3,405) 6,779
Decommissioning expenditures 14 (19) (18)
Funds flow from operations 16,748 13,730
Net change in non-cash operating working capital 26 (3,567) (987)
Cash from operating activities 13,181 12,743
Investing activities
Exploration and evaluation expenditures 7 (1,046) (17,638)
Property, plant and equipment expenditures 8 (22,633) (1,311)
Abandonment fund expenditures 14 (971) (626)
Proceeds from asset dispositions 7,8 1,066 250
Net change in non-cash investing working capital 26 2,964 (1,790)
Cash used in investing activities (20,620) (21,115)
Financing activities
Changes in restricted cash 13 (139) 236
Advance of bank debt, net of fees 13 15,747 7,000
Repayment of bank debt 13 (9,000) (6,000)
Net finance lease payments 10,12 (1,194) (692)
Issuance of common shares 15 415 210
Other liability payments - (469)
Net change in non-cash financing working capital 26 106 (155)
Cash from financing activities 5,935 130
Decrease in cash (1,504) (8,242)
Cash, beginning of year 8,186 16,335
Impact of foreign exchange on foreign denominated cash balances 62 93
Cash, end of year 6,744 8,186
Supplementary information for cash from operating activities:
Interest paid in cash 13 2,407 2,241
Income taxes paid in cash 21 1,399 1,880
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
Under its existing Third Amended and Restated Loan Agreement (the "Loan
Agreement"), the Company must comply with three financial covenants assessed
annually. As of December 31, 2024, the Company remained in compliance with all
covenants (see Note 13).
The Company is currently negotiating with its lender to amend the Loan
Agreement to incorporate two additional term loan facilities relating to a
proposed acquisition (see Note 27). As of the date hereof, the lender is
drafting a Fourth Amended and Restated Loan Agreement along with related
security documents.
If the proposed acquisition does not proceed with an amendment to the Loan
Agreement, the Company projects a breach of the debt service coverage covenant
as of December 31, 2025, which could result in the bank debt balance becoming
due. The Company's ability to continue as a going concern depends on
successfully amending the Loan Agreement or obtaining a waiver for the
forecasted breach. At this time, no waiver has been sought, as the existing
Loan Agreement is expected to be replaced by the amended version in
conjunction with the proposed acquisition.
These circumstances create material uncertainties that may cast significant
doubt on the Company's ability to continue as a going concern. These
financial statements do not reflect potential adjustments to the carrying
amounts of assets and liabilities, reported amounts of revenue and expenses,
and balance sheet classifications that would be required if the going concern
assumption were deemed inappropriate. Such adjustments could be material. The
auditor's report to the December 31, 2024 audited consolidated financial
statements draws attention to the material uncertainty relating to going
concern, but the auditor's opinion is not modified in respect of this matter.
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,
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
those items that are presented at fair value as detailed in the accounting
policies disclosed in Note 3 "Summary of Material Accounting Policies".
Touchstone'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.
These financial statements were approved and authorized for issuance by
Touchstone's Board of Directors (the "Board") on March 19, 2025.
3. Summary of Material Accounting Policies
The timely 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".
The accounting polices 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 following subsidiaries:
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
All inter-entity balances and transactions have been eliminated upon
consolidation between Touchstone Exploration Inc. and its subsidiaries in
these financial statements.
Joint arrangements
Touchstone may conduct its petroleum and natural gas activities through
jointly controlled operations, and the financial statements reflect only the
Company's proportionate interest in such activities. Joint control exists for
contractual arrangements governing the Company's assets whereby Touchstone has
less than 100 percent working interest, all of the partners have control of
the arrangement collectively, and spending on the project requires unanimous
consent of all parties that collectively control the arrangement and share the
associated risks.
The Company's joint venture arrangement with Heritage Petroleum Company
Limited ("Heritage") on the Ortoire block is considered a material jointly
controlled arrangement. Touchstone has an 80 percent working interest in the
block with Heritage holding the remaining 20 percent. Given both parties
approve the operating and capital budgets, the Company has joint control over
the relevant activities of this arrangement.
Foreign currency translation
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 earnings
(loss) and comprehensive income (loss) ("statements of income").
The results and financial position of all the Company's 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.
Financial instruments
Classification and measurement of financial instruments
Touchstone's financial assets and liabilities are classified as amortized
cost. The classification of financial assets is determined by the
characteristics of the contractual cash flows. The Company does not classify
any of its financial instruments as fair value through profit or loss or fair
value through other comprehensive income.
Financial assets and financial liabilities are measured at fair value on
initial recognition, which is typically the transaction price net of directly
attributable transaction costs, unless a financial instrument contains a
significant financing component. Financial assets and liabilities are
subsequently measured at amortized cost using the effective interest method.
Financial instruments under this classification include cash, accounts
receivable, restricted cash, finance lease receivable, accounts payable and
accrued liabilities, income taxes payable, lease liabilities and bank debt.
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.
Fair value measurement
Fair value is the price that would be received when selling an asset or paid
to transfer a liability in an orderly transaction between market participants
in its principal or most advantageous market at the measurement date. All
assets and liabilities for which fair value is measured or disclosed in the
financial statements are further categorized using the following three-level
hierarchy that reflects the significance of the lowest level of inputs used in
determining fair value.
· Level 1 - Quoted prices are available 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 - Pricing inputs are other than quoted prices in
active markets used in Level 1. Prices in Level 2 are either directly or
indirectly observable as of the reporting date. Level 2 valuations are based
on inputs which can be substantially observed or corroborated in the
marketplace, including quoted forward price for commodities, time value and
volatility factors.
· Level 3 - Valuations in this level are those with inputs
that are not based on observable market data.
At each reporting date, the Company determines whether transfers have occurred
between levels in the hierarchy by reassessing the level of classification for
each financial asset and financial liability measured or disclosed at fair
value in the financial statements based on the lowest level input that is
significant to the fair value measurement as a whole. Assessments of the
significance of a particular input to the fair value measurement require
judgement and may affect the placement within the fair value hierarchy.
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 costs 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 and natural gas liquids 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 petroleum
and natural gas products associated with production from test wells. These
operating results, including attributable royalties and operating expenses,
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 cost of disposal or value in use. 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 on the statements of income at that time.
Property, plant and equipment
Items of PP&E, which include petroleum and natural gas development assets,
ROU assets and corporate assets, are measured at cost less accumulated
depletion and depreciation expense and accumulated impairment expense.
Petroleum and natural gas 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 petroleum and natural gas 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 petroleum and natural gas 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
Petroleum and natural gas 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. Geography, product type,
and internal management are key factors considered when grouping petroleum and
natural gas development assets into CGUs.
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 fair value less costs of disposal and its value in use.
Any excess 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.
Fair value less costs to sell 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 fair value less costs to
sell. In assessing value in use, estimated future cash flows are discounted to
their present value using an after-tax discount rate that reflects current
market assessments of the time value of money and risks specific to the asset.
Value in use is 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 reversal, 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 fair value
less costs to sell, 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.
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 on 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 two 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.
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.
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. 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 in net finance expense.
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 cost of all abandonments defined as its percentage of crude oil
sold in a specific well in comparison to the well's cumulative historical
production. Touchstone is responsible for its working interest share of site
restoration, well abandonment costs and removal of infrastructure and
facilities used in petroleum and natural gas 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, which
include crude oil, natural gas and natural gas liquids. Revenue associated
with the sale of commodities is recognized when control of the commodity is
transferred to the buyer, the significant risks and rewards of ownership of
the commodity is transferred to the buyer, and Touchstone has the present
right to payment.
Touchstone also generates revenue from gathering and selling third-party
products through its infrastructure, which is recognized as other revenue in
the statements of income.
Share-based compensation plans
The Company's share-based compensation plans include both cash-settled awards
and equity-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. The Company's restricted share units ("RSUs"),
performance share units ("PSUs") and deferred share units ("DSUs") are
considered cash-settled 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
Provision for, or recovery of, income tax 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.
Per share information
Basic per share information is computed by dividing net earnings (loss)
attributable to shareholders by the weighted average number of common shares
outstanding during the period.
Diluted earnings 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 which could have a dilutive
impact on net earnings 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. Changes to Accounting Policies
New Accounting Policies
Amendments to IAS 1 Presentation of Financial Statements
The Company adopted amendments to IAS 1 Presentation of Financial Statements
("IAS 1") on January 1, 2024. IAS 1 was amended to clarify the requirements
for the presentation of liabilities as current or non-current and introduced a
requirement regarding the classification and disclosure of a liability with
covenants. The adoption of the amendments to IAS 1 had no impact on the
Company's financial statements.
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, with early adoption permitted. The
Company is evaluating the impact that the amendments will have on the
financial statements.
IFRS 18 Presentation and Disclosure in Financial Statements ("IFRS 18")
In April 2024, the IASB issued IFRS 18 which will replace IAS 1 and includes
requirements for the presentation and disclosure of information in financial
statements. IFRS 18 will introduce new totals, subtotals and categories for
income and expenses in the statements of income, as well as requiring
disclosure about management-defined performance measures and additional
requirements regarding the aggregation and disaggregation of certain
information. 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 evaluating the impact that this standard
will have on the 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.
Climate reporting regulations
Emissions, carbon, and other regulations impacting climate and climate-related
matters are constantly evolving. With respect to environmental, social and
governance, and climate reporting, the International Sustainability Standards
Board ("ISSB") issued an IFRS Sustainability Disclosure Standard with the aim
to develop sustainability disclosure standards that are globally consistent,
comparable, and reliable. On June 26, 2023, the ISSB released two standards:
IFRS S1 General Requirements for Disclosure of Sustainability-related
Financial Information and IFRS S2 Climate-related Disclosures. The Canadian
Sustainability Standards Board ("CSSB") was formed to support the adoption of
international sustainability standards in Canada. In December 2024, the CSSB
released CSDS 1 - General Requirements for Disclosure of
Sustainability-related Financial Information and CSDS 2 - Climate-related
Disclosures, which are largely aligned with the ISSB standards apart from a
Canadian-specific effective date and incremental transition relief.
In addition, the Canadian Securities Administrators ("CSA") have issued a
proposed National Instrument 51-107 Disclosure of Climate-related Matters.
Until the CSA mandates the adoption of CSDS 1 and 2, the CSSB standards will
be voluntary standards and as such, the Company has not yet adopted these
standards. The cost to comply with these standards, and others that may be
developed or evolve over time have yet to be quantified by the Company and it
is possible that the long-term effects of these new regulations will affect
the Company's business, results from operations, access to capital and
financial condition.
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.
Petroleum and natural gas reserves
There are a number of 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, 2024 and 2023, 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 petroleum and
natural gas 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 petroleum and natural gas 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 petroleum and natural gas
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
value in use calculations using discounted after-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 petroleum and natural gas 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.
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 fair value less cost of disposal model generally require
significant judgment and include forward price estimates of petroleum and
natural gas, volume of proved plus probable reserves and associated
assumptions, including future production costs, required capital investments,
reserve life 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.
Exploration and evaluation assets
E&E assets remain capitalized as long as sufficient progress is being made
in assessing whether the recovery of petroleum and natural gas 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
costs, 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.
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, settlement amounts,
historical third-party production data, inflation factors, risk-free discount
rates, 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 estimates to differ from actual costs.
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.
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, 2024, Touchstone was exposed to
credit risk with respect to its finance lease receivable (included in other
assets on the balance sheet) and accounts receivable balances.
The credit risk associated with Touchstone's $233,000 aggregate finance lease
receivable balance as at December 31, 2024 is considered negligible as the
assets are secured by the underlying equipment, with ownership transferring to
the counterparty subsequent to receipt of the final lease payment in February
2026 (refer to Note 10).
Credit risk is considered to be low for the Company's accounts receivable, as
Touchstone's credit exposure typically pertains to monthly commodity sales and
joint interest billings due from Trinidad government owned petroleum and
natural gas entities, and value added taxes ("VAT") due from the Trinidad
government. Petroleum and natural gas billings are typically collected within
one month of production, with approximately 31 percent of the Company's credit
exposure as at December 31, 2024 attributed to accrued revenue for December
2024 production volumes. Joint interest billings are typically collected
within one to two months following invoicing.
The following tables disclose the composition and aging of Touchstone's
accounts receivable balance as at December 31, 2024 and 2023.
($000's) December 31, December 31, 2023
2024
Composition
Petroleum and natural gas sales 4,334 6,424
Joint interest billings 806 702
VAT 7,678 5,058
Other 987 668
Accounts receivable balance 13,805 12,852
Aging
Current (less than 30 days) 6,045 7,880
31-60 days 539 302
61-90 days 556 308
Past due (greater than 90 days) 6,665 4,362
Accounts receivable balance 13,805 12,852
As at December 31, 2024 and 2023, Touchstone determined that the average
expected credit loss on its accounts receivables was $nil. The Company
believes that the accounts receivable balances that are past due are
collectible, as they solely represent VAT amounts due from the Trinidad
government. Although the timing of settlement is uncertain, Touchstone has not
historically experienced any collection issues.
Subsequent to December 31, 2024, $666,000 in past due VAT receivable was
collected and the Trinidad government issued the Company an aggregate
$2,955,000 in bonds in lieu of VAT payments that may be sold after July 31,
2025.
7. Exploration and Evaluation Assets
($000's) Year ended December 31,
2024 2023
Balance, beginning of year 5,030 51,352
Additions 1,046 18,199
Net transfers to PP&E (Note 8) - (31,803)
Impairment expense (Note 9) (2,311) (32,747)
Effect of change in foreign exchange rates (22) 29
Balance, end of year 3,743 5,030
During the year ended December 31, 2024, no direct and attributable overhead
charges were capitalized to E&E assets (2023 - $656,000).
Transfer to PP&E
Upon first production in September 2023, the Company transferred $32,204,000
of E&E costs related to its Cascadura CGU to PP&E. Immediately prior
to transferring the asset to PP&E, Touchstone performed the required
impairment test and determined that the recoverable amount of the asset
exceeded its carrying value, resulting in no impairment expense recognized.
Disposition
During the year ended December 31, 2024, the Company disposed of its
non-operated interest in a previously impaired non-core property with the
third-party operator for the counterparty's assumption of approximately
$779,000 in decommissioning and accrued liabilities. The transaction resulted
in a $779,000 gain on asset disposition recorded during the year ended
December 31, 2024.
8. Property, Plant and Equipment
($000's) Petroleum and natural gas development assets Right-of-use Corporate assets Total
assets
Cost
Balance, January 1, 2023 153,699 2,937 2,355 158,991
Additions 1,079 2,934 273 4,286
Transfer from (to) E&E assets (Note 7) 32,204 (401) - 31,803
Change in decommissioning asset (269) - - (269)
(Note 14)
Reclassified as assets held for sale (677) - - (677)
Foreign exchange translation 810 22 69 901
Balance, December 31, 2023 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 asset 97 - - 97
(Note 14)
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
Accumulated depletion, depreciation and impairment
Balance, January 1, 2023 89,435 480 1,914 91,829
Depletion and depreciation 5,595 241 173 6,009
Impairment reversal (Note 9) (11,326) - - (11,326)
Foreign exchange translation 325 5 45 375
Balance, December 31, 2023 84,029 726 2,132 86,887
Depletion and depreciation 8,245 1,020 236 9,501
Impairment expense (Note 9) 337 - - 337
Foreign exchange translation (392) (18) (158) (568)
Balance, December 31, 2024 92,219 1,728 2,210 96,157
Carrying amounts
Balance, December 31, 2023 102,817 4,766 565 108,148
Balance, December 31, 2024 115,262 5,371 1,749 122,382
$167,989,000 of future development costs were included in petroleum and
natural gas development asset cost bases for depletion calculation purposes
for the year ended December 31, 2024 (2023 - $105,252,000).
During the year ended December 31, 2024, $532,000 of direct and attributable
overhead charges were capitalized to PP&E (2023 - $309,000).
Acquisition
During the year ended December 31, 2024, the Company closed an asset swap
transaction with a third party. Touchstone swapped its 100 percent working
interest in a non-core privately leased property for the counterparty's 100
percent working interest in an operating agreement with Heritage governing the
Balata East block. The acquisition was not considered a business combination
under IFRS 3 Business Combinations.
The Company recognized a $1,434,000 gain on acquisition during the year ended
December 31, 2024, which represented the excess of the total identifiable net
assets acquired over the net liabilities of the assets disposed as set forth
in the following table.
($000's)
Net assets acquired
Petroleum and natural gas development assets 356
Abandonment fund (Note 14) 11
Decommissioning liabilities (Note 14) (130)
Total identifiable net assets acquired 237
Gain on acquisition (1,434)
(1,197)
Consideration
Petroleum and natural gas development assets 675
Decommissioning liabilities (Note 14) (1,872)
Total consideration (1,197)
Disposition
During the year ended December 31, 2024, Touchstone disposed of its working
interest in the CO-2 operating agreement with Heritage for aggregate
consideration of approximately $1,066,000. The transaction resulted in a
pre-tax impairment expense of $474,000 and no gain or loss on disposition.
Private lease agreements
Touchstone is operating under a number of private lease agreements which have
expired and are currently being renewed. Based on legal opinions received, the
Company is continuing to recognize petroleum and natural gas sales on the
producing properties because the Company is the operator, is paying all
associated royalties and income taxes, and no title to the producing
properties have been disputed. The continuation of production from expired
private leases during the renegotiation process is common in Trinidad based on
antiquated land title processes. During the year ended December 31, 2024,
production volumes produced under expired private lease agreements represented
0.5 percent of annual Company production (2023 - 1.3 percent).
9. Impairment
Exploration and evaluation assets
E&E asset impairment expense for the years ended December 31, 2024 and
2023 by operating area are disclosed in the following table.
Operating Area ($000's) Year ended December 31,
2024 2023
Cory Moruga (63) 66
Ortoire 2,385 32,649
E&E asset impairment expense 2,322 32,715
Touchstone recognized an impairment reversal of $63,000 primarily related to
decommissioning asset changes in the Cory Moruga operating area (2023 -
expense of $66,000). The Company's non-operated interest in the Cory Moruga
licence was disposed during the year ended December 31, 2024 (refer to Note
7).
The Company concluded that there were indicators of impairment within the
Ortoire E&E asset operating area as at December 31, 2024 as a result of
aligning future exploration activities with the Company's long-term
priorities. The Company performed an impairment test that concluded that the
recoverable amount of the asset was not sufficient to support its carrying
value, which resulted in a pre-tax impairment expense of $2,385,000 recorded
at December 31, 2024.
As a result of allocating future capital spending and the results of
production tests which deemed the Royston-1X well uneconomic, indicators of
impairment were noted within the Ortoire E&E asset area as at December 31,
2023. The Company performed an impairment test that concluded that the
recoverable amount of the asset was not sufficient to support its carrying
value, which resulted in an aggregate pre-tax impairment expense of
$32,649,000 recorded at December 31, 2023.
Property, plant and equipment
The following table discloses PP&E impairment expense (reversal) recorded
during the years ended December 31, 2024 and 2023 by CGU.
CGU ($000's) Year ended December 31,
2024 2023
Coho (137) 143
CO-1/CO-2 474 (13,865)
Fyzabad - 2,270
PP&E asset impairment expense (reversal) 337 (11,452)
During the year ended December 31, 2024, Touchstone disposed of its working
interest in the CO-2 operating agreement to a third-party. A pre-tax
impairment expense of $474,000 was recorded during the year ended December 31,
2024, as the fair value of the property's associated net assets was not
sufficient to support their fair value less cost of disposal.
At December 31, 2024, the Company identified indicators of impairment related
to its Cascadura and Coho natural gas development asset CGUs due to material
decreases in assigned reserves volumes. Based on the results of impairment
tests conducted, the recoverable amounts of each CGU were greater than their
corresponding carrying values. The impairment tests conducted at December 31,
2024 for the respective CGUs concluded the following recoverable amounts and
resulting pre-tax impairment reversal recorded during the year ended December
31, 2024.
CGU ($000's) Carrying value((1)) Recoverable amount Impairment reversal
Cascadura 33,464 110,531 -
Coho 2,983 4,322 137
Note:
(1) Net of associated deferred income tax liabilities.
Calculating CGU recoverable amounts involves several assumptions and estimates
which are subject to estimation uncertainty, as well as a significant degree
of judgement. The estimated recoverable amounts as of December 31, 2024 were
determined using value in use calculations incorporating discounted after-tax
cash flows of proved plus probable reserves using forward natural gas and
associated liquids prices and cost estimates as assessed by the Company's
independent qualified reserves evaluator. Discounted future cash flows for
each CGU were determined by applying a 20 percent after-tax discount rate
(approximately 53 percent pre-tax discount rate).
At December 31, 2024, the recoverable amounts of the two CGUs were calculated
using the following forward benchmark commodity prices adjusted for commodity
differentials specific to the CGU as estimated by the Company's independent
qualified reserves evaluator effective January 1, 2024. The prices and costs
subsequent to 2025 were adjusted for inflation at an annual rate of 2 percent
to the end of the CGUs reserves life.
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Brent crude oil ($/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
The value in use calculations used to determine the recoverable amounts of
Touchstone's CGUs at December 31, 2024 were classified as Level 3 fair value
measurements as certain key assumptions were not based on observable market
data, but rather, Management's best estimates. Changes in any of the key
judgments, such as a revision in reserves, changes in forecasted commodity
prices and inflation rates, operating costs, future development costs, or the
discount rate would impact the estimated recoverable amounts, and any
resulting change in impairment would affect comprehensive income. An increase
or decrease in the discount rate by 1 percent or commodity prices by 10
percent would not affect the $137,000 pre-tax impairment reversal recorded as
at December 31, 2024.
At December 31, 2023, the Company identified indicators of impairment for
three petroleum and natural gas development asset CGUs due to decreases in
assigned reserves volumes. Based on the results of impairment tests conducted,
the recoverable amounts for the Coho and Fyzabad CGUs were not sufficient to
support their carrying values, and the recoverable amount of the CO-1/CO-2 CGU
was greater than its carrying value. As a result, Touchstone recognized an
aggregate pre-tax impairment expense of $2,413,000 related to the Coho and
Fyzabad CGUs and a pre-tax impairment reversal of $13,865,000 associated with
the CO-1/CO-2 CGU at December 31, 2023. In addition, the Company recorded an
impairment expense of $126,000 related to slow moving oilfield capital
inventory not assigned to a specific CGU at December 31, 2023.
The impairment tests conducted at December 31, 2023 for the respective CGUs
concluded the following recoverable amounts and resulting pre-tax impairment
expenses and reversals recorded during the year ended December 31, 2023.
CGU ($000's) Carrying value((1)) Recoverable amount Impairment expense (reversal)
Coho 3,734 3,669 143
CO-1/CO-2 6,582 12,821 (13,865)
Fyzabad 2,051 1,029 2,270
Note:
(1) Net of associated deferred income tax liabilities.
The estimated recoverable amounts as of December 31, 2023 were determined
using value in use calculations incorporating discounted after-tax cash flows
of proved plus probable reserves using forward crude oil and natural gas
prices and cost estimates as assessed by the Company's independent qualified
reserves evaluator. Discounted future cash flows for each CGU were determined
by applying a 20 percent after-tax discount rate (approximately 57 percent
pre-tax discount rate).
The following table details the forward prices used in estimating the
recoverable amount of each CGU as at December 31, 2023.
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Brent crude oil ($/bbl) 78.00 79.18 80.36 81.79 83.41 85.09 86.79 88.52 90.29 92.10
Henry Hub natural gas ($/MMBtu) 2.75 3.64 4.02 4.10 4.18 4.27 4.35 4.44 4.53 4.62
The following table demonstrates the sensitivity of the pre-tax impairment
amounts by CGU to possible changes in key assumptions inherent in the December
31, 2023 impairment tests.
CGU ($000's) Decrease in discount rate of 1% Increase in discount rate of 1% Increase in commodity price of 10% Decrease in commodity price of 10%
Coho (143) 382 (143) 627
CO-1/CO-2 (644) 1,212 (644) 8,289
Fyzabad (49) 47 (342) 651
(Decrease) increase in impairment expense / reversal (836) 1,641 (1,129) 9,567
10. Other Assets
The following table sets forth the components of other assets as at December
31, 2024 and 2023.
($000's) December 31, December 31, 2023
2024
Non-current prepaid deposits 38 39
Finance lease receivable 70 295
Other assets balance 108 334
Touchstone is the lessor in an arrangement to lease oilfield service rigs to a
third-party service provider through February 2026. The Company continues to
hold title to the assets until all principal payments have been collected. The
lease arrangements was classified as a finance lease, as substantially all of
the risks and rewards incidental to ownership of the underlying assets are
held by the lessee.
The following table details the movements of the Company's finance lease
receivable during the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Balance, beginning of year 350 534
Interest income 26 43
Payments received (192) (228)
Lease modification 50 -
Effect of change in foreign exchange rates (1) 1
Balance, end of year 233 350
Current (included in accounts receivable) 163 55
Non-current (included in other assets) 70 295
Finance lease receivable balance 233 350
11. Financial Liabilities and Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they come due. Touchstone actively manages its
liquidity risk through cash and debt management strategies such as
continuously monitoring actual and forecasted cash and working capital
balances and cash flows from operating, investing and financing activities,
ensuing compliance with bank debt covenants, and seeking opportunities to
expand its existing bank debt or to issue additional equity (refer to Note 1).
At December 31, 2024, the Company had a working capital deficiency based on
increased capital investments throughout 2024, primarily relating to
expenditures on infrastructure and development wells that were placed on
production in November 2024.
The Company's principle near-term development plan is focused on increasing
cash flow generation via development activities. The Company will take a
measured approach to future developmental and exploration capital expenditures
to manage financial liquidity while proceeding with this plan. Touchstone will
continue to actively monitor its liquidity to ensure that cash flows, bank
debt capacity and working capital are adequate to support current and future
financial liabilities, as well as the Company's near-term capital programs and
future work commitments.
The following table sets forth estimated undiscounted cash outflows and
financial maturities of Touchstone's financial liabilities as at December 31,
2024.
($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)) 14,373 14,373 - -
Income taxes payable (Note 21) 6 6 - -
Lease liabilities((3)) (Note 12) 7,283 2,361 3,429 1,493
Bank debt((3)(4)) (Note 13) 39,314 9,675 25,690 3,949
Share-based compensation liabilities((5)) (Note 19) 500 383 117 -
Total financial liabilities 61,476 26,798 29,236 5,442
Notes:
(1) The undiscounted cash outflows equal their carrying values, with the
exception of lease liabilities and bank debt.
(2) Excludes the current portion of lease liabilities and share-based
compensation liabilities.
(3) Includes the notional interest and principal payments.
(4) Future interest payments are based on current interest rates, where
two of the Company's three loan facility interest rates are reset on an annual
basis (refer to Note 13).
(5) Accrued obligations associated with share-based compensation expected
to be settled in cash.
Refer to Note 13 "Bank Debt", Note 23 "Capital Management" and Note 24
"Commitments and Contingencies" for further details regarding the Company's
debt structure and capital management objectives and policies.
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 are effective from periods of two to eight years
but may have extension options. Discount rates used in calculating the present
values of lease payments during the year ended December 31, 2024 were between
5 and 10 percent.
The following table provides a continuity of the Company's lease liabilities
for the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Balance, beginning of year 4,328 2,255
Additions 2,930 2,934
Interest expense 415 287
Repayments (1,775) (1,164)
Effect of change in foreign exchange rates (32) 16
Balance, end of year 5,866 4,328
Current (included in accounts payable and accrued liabilities) 1,498 1,440
Non-current 4,368 2,888
Lease liabilities balance 5,866 4,328
During the year ended December 31, 2024, the Company extended a drilling
services contract through October 6, 2026 wherein Touchstone is required to
utilize a drilling rig for a minimum of 120 days per annum over the additional
two-year term. The Company recognized a $2,930,000 lease liability and
associated ROU asset in connection with the lease arrangement.
The following table details the undiscounted cash flows which include both
principal and interest components of the Company's lease liabilities as at
December 31, 2024 and 2023.
($000's) December 31, December 31,
2024 2023
Less than one year 2,361 1,746
1 to 3 years 3,429 1,634
Thereafter 1,493 2,224
Undiscounted cash flows related to lease liabilities 7,283 5,604
Payments recognized in the financial statements relating to short-term leases
and leases of low-value assets for the year ended December 31, 2024 were
$67,000 (2023 - $441,000). The arrangements primarily consisted of leases for
motor vehicles and well service equipment, which were recognized in operating
expenses in the statements of income. Variable lease payments of $181,000 not
included in the calculation of the Company's lease liabilities during the year
ended December 31, 2024 were recognized in general and administration expense
in the statements of income (2023 - $126,000).
13. Bank Debt
On April 18, 2024, the Company and its Trinidad based lender executed a Third
Amended and Restated Loan Agreement, providing for an additional $10 million
five-year non-revolving term loan facility ("term loan facility 2") and an
increase to the existing revolving loan facility borrowing capacity from $7
million to $10 million. As at December 31, 2024, the Company had $35,000,000
in aggregate principal bank debt outstanding, with $7,250,000 classified as
short term on the consolidated balance sheet (2023 - $28,000,000 and
$13,000,000, respectively). As at December 31, 2024, the Company had no
available credit capacity.
Term loan facility 1
The Loan Agreement did not change the terms of the Company's original June 15,
2022 term loan facility ("term loan facility 1"). The facility matures on June
15, 2027 and bears a fixed interest rate of 7.85 percent per annum, compounded
and payable quarterly. As at December 31, 2024, the principal balance of term
loan facility 1 was $15,000,000, with ten equal and consecutive quarterly
principal payments of $1,500,000 outstanding.
Term loan facility 2
The Company withdrew the full amount of the $10,000,000 term loan facility 2
on May 1, 2024. The facility was measured at amortised cost, with the
associated financing fees of $253,000 unwound using the effective interest
rate method to the face value at maturity. The facility matures on April 30,
2029, and bears an interest rate of 7.49 percent through April 2025 which is
reset on an annual basis. As at December 31, 2024, the principal balance of
the term loan facility was $10,000,000, with sixteen equal and consecutive
quarterly principal payments of $625,000 payable from July 31, 2025 through
April 30, 2029.
Revolving loan facility
The Loan Agreement extended the revolving loan facility by a two-year period
through May 31, 2026. The facility may be renewed by additional two-year
periods by agreement between the parties. The revolving loan bears interest at
a rate of 7.23 percent through May 2025 and is reset annually. Outstanding
principal may be repaid at any time, on or before the maturity date without
penalty and any amounts repaid may be redrawn at any time. The full
$10,000,000 revolving loan facility was drawn as of December 31, 2024 (2023 -
$7,000,000).
The following table details the movements of the Company's bank debt balance
for the years ended December 31, 2024 and 2023.
($000's) Term loan facility 1 Term loan facility 2 Revolving loan facility Bank debt
Balance, January 1, 2023 26,962 - - 26,962
Advances - - 7,000 7,000
Repayments (6,000) - - (6,000)
Accretion 15 - - 15
Balance, December 31, 2023 20,977 - 7,000 27,977
Advances, net of fees - 9,747 6,000 15,747
Repayments (6,000) - (3,000) (9,000)
Accretion 16 51 - 67
Balance, December 31, 2024 14,993 9,798 10,000 34,791
Current 6,000 1,250 - 7,250
Non-current 8,993 8,548 10,000 27,541
Bank debt balance 14,993 9,798 10,000 34,791
Touchstone's bank debt is principally secured by a pledge of equity interests
and fixed and floating security interests over all present and after acquired
assets of its two Trinidad exploration and production subsidiaries. The Loan
Agreement contains industry standard representations and warranties,
undertakings, events of default, and the following financial covenants, which
are applicable on a consolidated basis and evaluated on an annual basis.
Financial covenant description Limit Year ended December 31, 2024
Net senior funded debt((1)) to trailing annual EBIDA((2)) 3.00 times 1.27
Net senior funded debt to book value of equity((3)) 0.70 times 0.24
Debt service coverage((4)) Minimum of 1.75 times 2.23
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.
As at December 31, 2024, the Company was compliant with all covenants provided
for in the Loan Agreement.
Pursuant to the Loan Agreement, Touchstone must at all times maintain a cash
reserves balance of not less than the equivalent of two subsequent quarterly
interest payments related to the term loan facilities. Accordingly, the
Company classified $924,000 of cash as non-current restricted cash as at
December 31, 2024 (2023 - $785,000).
14. Decommissioning Liabilities and Abandonment Fund
Touchstone's decommissioning liabilities were calculated by Management based
on the Company's net ownership interest in all wells, pipelines and
facilities, estimated costs to reclaim and abandon these wells, pipelines and
facilities, and the estimated timing of the costs to be incurred in future
periods. Payments to settle the obligations occur over the operating lives of
the underlying assets forecasted to be from nine to sixteen years, with the
majority of the costs estimated to be incurred subsequent to 2031. The
liabilities are expected to be financed from the related abandonment funds and
the Company's internal resources available at the time of settlement.
Pursuant to Heritage and MEEI production and exploration licences and
agreements, the Company is obligated to remit payments into various
abandonment funds based on production. Touchstone remits $0.25 per barrel
equivalent of products sold, and the funds shall be used for the future
abandonment of wells in the related licenced area. As at December 31, 2024,
the Company classified $2,965,000 of accrued or paid fund contributions as
non-current abandonment fund assets (2023 - $2,081,000).
The Company has estimated the net present value of the cash flows required to
settle its decommissioning liabilities to be $9,985,000 at December 31, 2024
based on an inflation adjusted undiscounted future liability of $15,197,000
(2023 - $9,733,000 and $14,910,000, respectively). Decommissioning liabilities
were estimated as at December 31, 2024 using a weighted average long-term
risk-free rate of 5.5 percent and a long-term inflation rate of 1.9 percent
(2023 - 5.3 percent and 2.1 percent, respectively). The following table
summarizes the movements of Touchstone's estimated decommissioning liability
provision during the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Balance, beginning of year 9,733 11,182
Liabilities incurred from development activities 407 480
Liabilities acquired (Note 8) 130 -
Liabilities settled (19) (18)
Accretion expense 226 257
Revisions to estimates (282) (317)
Dispositions (Notes 7 and 8) (166) (1,898)
Effect of change in foreign exchange rates (44) 47
Balance, end of year 9,985 9,733
15. Shareholders' Capital
Issued and outstanding common shares
The Company is authorized to issue an unlimited number of voting common shares
without nominal or par value. The holders of the common shares are entitled to
one vote in respect of each common share held at all meetings of shareholders
and the rights to any dividends declared.
The following table summarizes changes in common shares outstanding and
shareholders' capital for the years ended December 31, 2024 and 2023.
Number of shares outstanding Shareholders' capital
($000's)
Balance, January 1, 2023 233,037,226 114,635
Issued under share-based compensation plans 1,175,500 330
Balance, December 31, 2023 234,212,726 114,965
Issued under share-based compensation plans 2,247,935 645
Balance, December 31, 2024 236,460,661 115,610
For the year ended December 31, 2024, a total of 2,247,935 stock options were
exercised for total proceeds of $415,000 (2023 - 1,175,500 stock options were
exercised for total proceeds of $210,000). $230,000 of contributed surplus
related to the stock options exercised was transferred to shareholder's
capital during the year ended December 31, 2024 (2023 - $120,000).
Weighted average common shares
The following table sets forth the details of weighted average common shares
used in calculating net earnings (loss) per common share during the years
ended December 31, 2024 and 2023.
Year ended December 31,
2024 2023
Weighted average common shares outstanding - basic 235,508,553 233,487,066
Dilutive impact of share-based compensation plans 983,561 -
Weighted average common shares outstanding - diluted 236,492,114 233,487,066
For the year ended December 31, 2024, 9.7 million share-based compensation
awards were excluded from the diluted weighted average shares calculation, as
they were anti-dilutive (2023 - 10 million).
16. Petroleum and Natural Gas Sales
Touchstone derives its primary revenue from contracts with Trinidad
government-owned entities through the transfer of commodities invoiced at the
end of each month. The following table sets forth petroleum and natural gas
sales by major product type for the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Crude oil 30,317 29,232
Natural gas liquids 3,331 5,434
Natural gas 23,822 13,432
Petroleum and natural gas sales 57,470 48,098
At December 31, 2024, accounts receivable from petroleum and natural gas sales
were $4,334,000 related to December 2024 production (2023 - $6,424,000).
17. Net Finance Expense
($000's) Year ended December 31,
2024 2023
Interest income (20) (58)
Finance lease interest income (Note 10) (26) (43)
Lease liability interest expense (Note 12) 415 287
Bank debt interest expense (Note 13) 2,387 2,221
Financing expense 18 114
Accretion on decommissioning liabilities (Note 14) 226 257
Other 18 (325)
Net finance expense 3,018 2,453
18. Transaction Expense
In connection with the terminated acquisition of Trinity Exploration and
Production Plc, Touchstone incurred $1,957,000 in transaction expenses during
the year ended December 31, 2024.
For the year ended December 31, 2024, Touchstone incurred $66,000 in
transaction costs pursuant to the Company's proposed acquisition (refer to
Note 27).
19. Share-based Compensation Plans
Touchstone has a stock option plan (the "Legacy Stock Option Plan") pursuant
to which options to purchase common shares of the Company were granted by the
Board to directors, officers and employees of Touchstone. Touchstone adopted
an omnibus incentive compensation plan in June 2023 (the "Omnibus Plan") which
replaced the Legacy Stock Option Plan and was adopted to allow the Company to
grant stock options, RSUs and PSUs to directors, officers, employees and
consultants. The aggregate number of common shares reserved for issuance under
the Legacy Stock Option Plan and the Omnibus Plan at any time is limited to 10
percent of the Company's issued and outstanding common shares.
Stock option plans
No additional stock options will be granted under the Legacy Stock Option
Plan, and all outstanding stock options previously issued pursuant to the
Legacy Stock Option Plan will continue to be governed by such plan and will
continue to vest in accordance with their existing vesting schedules.
Unless otherwise determined by the Board, stock option vesting occurs one
third on each of the next three anniversaries of the grant date as recipients
render continuous service to the Company, and stock options expire five years
from the grant date. The option holder has the right to exercise the options
and purchase one common share per option at the original grant price.
Equity-settled share-based compensation expense is recognized as the stock
options vest.
The following table summarizes changes in outstanding stock options and the
related weighted average exercise prices for the years ended December 31, 2024
and 2023.
Number of stock options outstanding Weighted average exercise price (C$)
Issued and outstanding, January 1, 2023 11,928,435 1.00
Granted 3,644,000 1.15
Exercised (1,175,500) 0.24
Forfeited (69,000) 1.42
Issued and outstanding, December 31, 2023 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
Exercisable, December 31, 2024 8,294,666 1.26
The following table sets forth outstanding stock options and their weighted
average remaining life as at December 31, 2024.
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)
0.48 2,052,000 0.3 2,052,000 0.3
1.15 to 1.27 3,655,000 3.7 1,245,336 3.7
1.38 to 1.43 3,098,000 2.2 2,149,664 2.2
1.55 to 1.73 2,759,000 1.5 2,680,666 1.5
2.07 167,000 1.0 167,000 1.0
0.48 to 2.07 11,731,000 2.2 8,294,666 1.7
There were no stock options granted during the year ended December 31, 2024.
The weighted average fair value of stock options granted under the Omnibus
Plan during the year ended December 31, 2023 was C$0.55 per option as
estimated on the date of each grant using the Black-Scholes option pricing
model. The weighted average assumptions used in the Black-Scholes model to
determine the fair value of the stock options granted for the year ended
December 31, 2023 are set forth in the following table.
Assumption Year ended December 31, 2023
Grant date share price (C$) 1.15
Exercise price (C$) 1.15
Risk-free interest rate (percent) 4.5
Expected life (years) 3.0
Volatility (percent) 69.0
Expected annual dividends (C$) -
Expected forfeiture rate (percent) 5.0
Long-term incentive plans
Share awards plan
On July 12, 2024, the Company issued 1,447,780 RSUs and 1,397,780 PSUs under
its Omnibus Plan to executive officers and key employees. The RSUs vest one
third on each of the next three anniversaries of the grant date and the number
of share awards are fixed. The PSUs vest on July 12, 2027 and the number of
share awards are variable. Each award may, in the Board's sole discretion,
entitle the holder to be issued the number of Company common shares designated
in the award or receive a payment in cash. If paid in cash, the plan
participant will receive a cash payment based on the fair value of the
underlying common shares on the applicable vesting date. PSUs are subject to a
performance multiplier. This multiplier, ranging from zero to 1.75, will be
applied to the original PSU awards granted on vesting and is dependent on the
performance of the Company relative to predefined corporate performance
measures set by the Board over the three-year vesting period.
All RSUs and PSUs are currently accounted for as cash settled. The fair value
of the share-based compensation liability is determined based on the Company's
closing common share price on the financial reporting date and is recognized
as the share awards vest in the statements of income. PSUs are also adjusted
by an estimated payout multiplier. The amount of cash-settled share-based
compensation expense is reduced by an estimated forfeiture rate on the grant
date, which has been estimated at five percent of outstanding share awards.
The forfeiture rate is adjusted to reflect the actual number of shares that
vest.
Deferred share unit plan
The Company offers a DSU plan to non-employee directors. On July 12, 2024, the
Company issued 977,332 DSUs to its non-employee directors. The DSUs fully vest
on the grant date but are only available for redemption when the director
ceases to be a member of the Board. Awards are settled in cash as determined
by the value of the underlying common shares on the payment date and may be
adjusted based on dividend equivalents from the grant date at the discretion
of the Board. The fair value of the liability is determined based on the
Company's closing common price on the financial reporting date in the
statements of income.
The following table summarizes outstanding RSU, PSU and DSU awards for the
years ended December 31, 2024 and 2023.
(number of awards) RSUs PSUs((1)) DSUs
Issued and outstanding, December 31, 2023 - - -
Granted 1,447,780 1,397,780 977,332
Issued and outstanding, December 31, 2024 1,447,780 1,397,780 977,332
Note:
(1) Based on the underlying awards before any effect of the performance
multiplier.
Share-based compensation expense
The following table sets forth share-based compensation expense recorded in
relation to issued awards pursuant to our share-based compensation plans for
the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Equity-settled compensation (stock options) 1,133 1,381
Cash-settled compensation (RSUs, PSUs and DSUs) 528 -
Capitalized expense (72) (138)
Share-based compensation expense 1,589 1,243
Share-based compensation liabilities
The following table sets forth share-based compensation liabilities pursuant
to our share awards and DSU compensation plans for the year ended December 31,
2024.
($000's) Year ended December 31, 2024
Balance, beginning of year -
Liability incurred from grant of DSUs 429
Increase in liability related to RSUs and PSUs 253
Fair value adjustments (154)
Effect of change in foreign exchange rates (28)
Balance, end of year 500
Current (included in accounts payable and accrued liabilities) 383
Non-current 117
Share-based compensation liabilities balance 500
20. Other Expense
The Company filed an insurance claim relating to a crude oil spill that
occurred in 2022. For the year ended December 31, 2023, Touchstone received
aggregate insurance proceeds of $552,000 relating to the incident.
21. Income Taxes
The Trinidad statutory petroleum profit tax ("PPT") and unemployment levy for
2024 and 2023 were a combined rate of 55 percent of taxable income. The
following table is a reconciliation of income tax (recovery) expense
calculated by applying the applicable aggregate Trinidad statutory petroleum
tax rate to net earnings (loss) before income tax expense.
($000's unless otherwise stated) Year ended December 31,
2024 2023
Earnings (loss) before income tax expense 6,028 (12,713)
Trinidad statutory combined petroleum income tax rate 55.0% 55.0%
Expected income tax expense (recovery) at statutory income tax rates 3,315 (6,992)
Effect on income tax resulting from:
Change in income tax assets not recognized (8,006) 13,654
Income tax rate differential (1,684) 428
Effect of change in foreign exchange rates and other 4,131 795
Income tax (recovery) expense (2,244) 7,885
The Company's net deferred income tax liability relates to its Trinidad
operational entities. The following table details the components of the net
deferred income tax liability for the years ended December 31, 2024 and 2023.
($000's) December 31, 2024 December 31, 2023
Deferred income tax liabilities
PP&E in excess of income tax basis 29,618 31,273
Other 67 241
Deferred income tax assets
Decommissioning liabilities (636) (683)
Lease liabilities (2,734) (1,747)
Non-capital losses (1,575) (304)
Intercompany interest (6,816) (7,347)
Net deferred income tax liability 17,924 21,433
The December 31, 2024 net deferred income tax liability decreased by
$3,509,000 from December 31, 2023, with $104,000 and $3,405,000 of deferred
income tax recoveries recognized though equity and comprehensive income,
respectively (2023 - $97,000 and $6,779,000 of deferred income tax expense
recognized through equity and comprehensive loss, respectively).
The following table sets forth the components of Touchstone's unrecognized
deductible temporary differences as at December 31, 2024 and 2023.
($000's) December 31, 2024 December 31, 2023
E&E assets (2,618) (3,686)
PP&E (26,817) (14,399)
Loss carry forwards 122,531 126,354
Decommissioning liabilities 8,828 10,390
Other 2,435 9,293
Unrecognized deductible temporary differences 104,359 127,952
The following table sets forth the Company's estimated income tax losses as at
December 31, 2024 and 2023.
($000's) December 31, 2024 December 31, 2023
Trinidad PPT losses 44,178 40,596
Trinidad corporate tax losses 63 440
Canada non-capital losses 80,817 85,458
Trinidadian PPT losses and corporate tax losses may be carried forward
indefinitely to reduce the taxes in future years. PPT losses can only be
utilized to shelter a maximum of 75 percent of income subject to PPT per
annum. A deferred income tax asset has not been recognized with respect to PPT
losses in the amount of $41,028,000 and Trinidad corporate income tax losses
of $63,000 as it was not considered probable that the benefit of the
respective losses would be realized at December 31, 2024 (2023 - $40,215,000
and $60,000, respectively). Similarly, the benefit of the Canadian non-capital
losses was not recognized as at December 31, 2024 and 2023.
The following table is a continuity schedule of the Company's current income
tax payable for the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Balance, beginning of year 240 1,014
Current income tax expense:
Petroleum profit tax / unemployment levy 7 526
Supplemental petroleum tax - 234
Corporate income tax / other 1,154 346
Income tax payments (1,399) (1,880)
Income tax receipts - -
Effect of change in foreign exchange rates 4 -
Balance, end of year 6 240
The tax regulations and legislation and interpretations thereof in the various
jurisdictions in which the Company operates are continually changing. As a
result, there are generally various income tax matters under review, and
Touchstone believes that the provision for income taxes is adequate.
22. Financial Instruments and Market Risk Management
Financial instruments
As of December 31, 2024, the Company's financial instruments included cash,
accounts receivable, restricted cash, finance lease receivable (included in
other assets on the balance sheet), accounts payable and accrued liabilities,
income taxes payable, lease liabilities and bank debt.
The carrying values of Touchstone's cash, accounts receivable, accounts
payable and accrued liabilities and income taxes payable as of December 31,
2024 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, 2024 and 2023.
Market risk management
The Company is exposed to certain financial and market risks inherent in the
international oil and natural gas industry including, but not limited to,
commodity price risk, foreign exchange rate risk, interest rate risk, equity
price risk, credit risk (refer to Note 6) and liquidity risk (refer to Note
11). The risk exposures are proactively reviewed by Touchstone, and Management
seeks to mitigate these risks through various business processes and controls.
Management of cash flow variability is an integral component of the Company's
business strategy. Changing business conditions are monitored regularly and,
where material, reviewed with the Board to establish risk management
guidelines to be used by Touchstone.
The following sensitivity analyses demonstrate the potential impact that a
change in these market risk factors could have on the fair value of
Touchstone's risk management contracts and subsequently the impact of
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, 2024. The results of the
sensitivity analyses should not be considered to be predictive of future
performance.
Commodity price risk
Touchstone's operational and financial results are largely dependent on the
commodity prices received from crude oil, natural gas liquids and natural gas
production. Movements in crude oil and liquids pricing could have a
significant positive or negative effect on the Company's comprehensive income
and cash flows. Touchstone does not currently hedge this risk given that over
70 percent of its forecasted petroleum and natural gas sales is expected to be
derived from natural gas production governed by a fixed price contract through
October 2027. The Company will continue to monitor forward commodity prices
and may enter future commodity-based risk management contracts to reduce the
volatility of crude oil and liquids sales and protect future development and
exploration capital programs.
For the year ended December 31, 2024, with all other variables held constant,
a 10 percent increase or decrease in the realized pricing received from crude
oil and liquids production volumes would have resulted in an approximate
$575,000 increase or $1,418,000 decrease in comprehensive income, based on the
effects of supplemental petroleum profit taxes (2023 - $166,000 decrease and
$2,415,000 decrease, respectively).
Foreign currency risk
Foreign currency exchange risk arises from changes in foreign exchange rates
that may affect the fair value or future cash flows of the Company's financial
assets or liabilities. Touchstone's foreign currency policy is to monitor
foreign currency risk exposure in its areas of operations and mitigate that
risk where possible by matching foreign currency denominated expenses with
petroleum and natural gas sales paid in foreign currencies. The Company
attempts to limit its exposure to foreign currency risk through collecting and
paying foreign currency denominated balances in a timely fashion. Touchstone
does not hedge its foreign exchange risk.
As the Company operates in Trinidad, fluctuations in the exchange rate between
the TT$ and the US$ could have a significant effect on financial results.
Although the sales prices of crude oil and liquids production are determined
by reference to US$ denominated benchmark prices, the majority of the invoices
for such sales are paid in TT$, exposing Touchstone to foreign exchange risk.
In addition, Touchstone has US$ denominated debt and related interest
payments. These risks are currently mitigated by the fact that the TT$ is
informally pegged to the US$ and all natural gas and natural gas liquids sales
are denominated and payable in US$.
The Company has further foreign exchange exposure on cash balances denominated
in C$ and pounds sterling, head office costs denominated and payable in C$,
and costs denominated and payable in pounds sterling required to maintain its
AIM listing. Any material movements in the C$ to US$ and the pound sterling to
US$ exchange rates may result in unanticipated fluctuations or have a material
effect on Touchstone's reporting results.
For the year ended December 31, 2024, 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 $100,000 increase or decrease in comprehensive
income (2023 - $193,000). A 5 percent increase or decrease in the foreign
exchange rates applicable to TT$, C$ and pounds sterling dollar-denominated
receivables and payables would have resulted in an approximate $78,000
increase or decrease in comprehensive income for the year ended December 31,
2024 (2023 - $175,000).
Interest rate risk
Interest rate risk arises from changes in market interest rates that may
affect comprehensive income and cash flows. The Company's term loan facility 2
and revolving loan facility are subject to interest rate risk given the
applicable annual interest rates are reset on an annual basis based on the
one-year term secured overnight financing rate. The current interest rates for
the term loan facility 2 and the revolving facility are 7.49 percent and 7.23
percent, respectively.
For the year ended December 31, 2024, with all other variables held constant,
a 50-basis point increase or decrease in the interest rates applicable to the
Company's term loan facility 2 and revolving loan facility would have resulted
in an approximate $32,000 decrease or increase in comprehensive income (2023 -
$24,000).
Equity price risk
The Company is exposed to equity price risk on its own share price in relation
to awards issued under its Omnibus Plan and DSU plan, which affects
comprehensive income through the revaluation of awards that are accounted for
as cash-settled transactions at each period-end. Changes in the Company's
share price will result in an increase or decrease in the amount that
Touchstone recognizes as share-based compensation expense and the amount
Touchstone ultimately pays to settle the awards.
For the year ended December 31, 2024, 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 $134,000 decrease or increase in
comprehensive income. The Company had no cash-settled awards outstanding as at
and during the year ended December 31, 2023.
23. Capital Management
Touchstone actively manages its capital structure and adjusts it in response
to changes in economic conditions and the risk characteristics of its
underlying assets. Touchstone considers its capital structure to include
shareholders' equity, working capital and bank debt. Touchstone uses share
equity and bank debt as its primary sources of capital.
Touchstone considers funds flow from operations to be a key measure of capital
management and operating performance as it demonstrates the Company's ability
to generate the funds necessary to finance capital expenditures and repay
debt. Management believes that by excluding the temporary impact of changes in
non-cash operating working capital, funds flow from operations provides a
useful measure of the Company's ability to generate cash that is not subject
to short-term movements in non-cash operating working capital.
Management monitors working capital, net debt and managed capital as part of
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 balance sheet. Net debt is calculated by summing the Company's
working capital and the principal (undiscounted) non-current amount of senior
secured debt and is most directly comparable to total liabilities disclosed in
the Company's balance sheet. Management defines managed capital as the sum of
net debt and shareholders' equity.
When evaluating the Company's capital structure, Management's long-term
strategy is to maintain net debt to trailing twelve-month funds flow from
operations at or below a ratio of 2.0 times in a normalized commodity price
environment. This ratio may increase at certain times as a result of increased
capital expenditures or low commodity prices. Touchstone also monitors its
capital management through the net debt to managed capital ratio. The
Company's strategy is to utilize more equity than debt, thereby targeting net
debt to managed capital at a ratio of less than 0.4 to 1.
Touchstone's internal capital management calculations for years ended December
31, 2024 and 2023 are set forth in the following table.
($000's) Target measure December 31, December 31, 2023
2024
Current assets (22,151) (22,570)
Current liabilities 23,510 30,151
Working capital deficit 1,359 7,581
Principal balance of non-current bank debt 27,750 15,000
Net debt 29,109 22,581
Shareholders' equity 68,828 59,766
Managed capital 97,937 82,347
Annual funds flow from operations 16,748 13,730
Net debt to funds flow from operations ratio At or < 2.0 times 1.74 1.64
Net debt to managed capital ratio < 0.4 times 0.30 0.27
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.
24. Commitments and Contingencies
Touchstone has contractual obligations in the normal course of business which
include minimum work obligations under various operating agreements with
Heritage, exploration commitments pursuant to its exploration and production
licences with the MEEI, and various lease commitments (refer to Note 12). The
following table sets forth the Company's estimated minimum contractual
payments as at December 31, 2024.
($000's) Total Estimated payments due by year
2025 2026 2027 Thereafter
Operating agreements 19,506 8,664 1,838 4,762 4,242
Exploration agreements 61,186 1,762 11,716 11,920 35,788
Other commitments 530 252 187 73 18
Minimum payments 81,222 10,678 13,741 16,755 40,048
Pursuant to operating agreements with Heritage, the Company is obligated to
fulfill minimum work commitments on an annual basis over each licence term.
With respect to these obligations, Touchstone is required to drill six
development wells prior to December 31, 2025.
As of December 31, 2024, Touchstone is obligated to drill an aggregate ten
exploration wells on its exploration properties through 2029.
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
Touchstone has determined that the key management personnel of the Company is
comprised of its directors and executive officers. The compensation of
directors and executive officers is reviewed annually by the Board's
independent Governance and Compensation Committee against industry practice
for petroleum and natural gas companies of similar size and scope. The
following table sets forth key management personnel compensation paid or
payable during the years ended December 31, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Salaries and benefits included in general and administration expense 1,517 1,244
Director fees included in general and administration expense 405 381
Share-based compensation expense (Note 19) 1,177 886
Capitalized salaries, benefits and share-based compensation 44 107
Key management compensation 3,143 2,618
The Company's Chief Executive Officer, Chief Financial Officer and its
Trinidad-based director serve as independent board members of a separate
Trinidad charitable entity established by Touchstone. For the year ended
December 31, 2024, the Company donated $30,000 to the charitable entity (2023
- $16,000).
26. Supplemental Disclosures
Presentation in the statements of income
Touchstone's statements of income are prepared primarily by nature of item,
with the exception of employee compensation expense which is included in both
operating expense and general and administration expense line items. 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, 2024 and 2023.
($000's) Year ended December 31,
2024 2023
Operating expense 1,718 1,282
General and administration expense 4,484 4,552
Employee compensation expense 6,202 5,834
Presentation in the statements of cash flows
The following tables provide a breakdown of certain line items contained
within the consolidated statements of cash flows.
Net change in non-cash working capital ($000's) Year ended December 31,
2024 2023
Source (use) of cash:
Accounts receivable (953) (5,365)
Inventory 6 38
Prepaid expenses (753) 578
Accounts payable and accrued liabilities 1,241 2,276
Income taxes payable (234) (774)
Transfer from (to) other assets 106 (22)
Transfer (from) to non-current other liabilities (383) 836
Transfer from non-current lease liabilities (25) (557)
Foreign exchange on working capital balances 498 58
Net change in non-cash working capital (497) (2,932)
Related to:
Operating activities (3,567) (987)
Investing activities 2,964 (1,790)
Financing activities 106 (155)
Net change in non-cash working capital (497) (2,932)
Other non-cash items ($000's) Year ended December 31,
2024 2023
Lease modification (Note 10) (50) -
Accretion on bank debt (Note 13) 67 15
Accretion on decommissioning liabilities (Note 14) 226 257
Other - (352)
Other non-cash items 243 (80)
27. Subsequent Events
Proposed Acquisition
On December 12, 2024, the Company's wholly owned Trinidadian subsidiary signed
a share purchase agreement to acquire 100 percent of a Trinidad private entity
(the "Proposed Acquisition") from a third party. The entity holds a 65 percent
operating working interest in the onshore Central Block exploration and
production licence, as well as a gas processing plant in Trinidad, with
Heritage holding the remaining 35 percent working interest.
Under the terms of the Proposed Acquisition, Touchstone will pay $23 million
consideration in cash prior to adjustments for closing cash and abandonment
fund balances. The Proposed Acquisition is contingent on customary regulatory
approvals and conditions precedent, including securing the necessary funding.
The Proposed Acquisition is effective January 1, 2025, and is expected to
close in the second quarter of 2025.
As of the date hereof, the Company does not have sufficient information to
disclose a preliminary purchase price allocation.
To finance the Proposed Acquisition, Touchstone and its lender are negotiating
a binding term sheet providing for two additional six-year term loan
facilities totalling $38.2 million. As of the date hereof, the lender is
drafting a Fourth Amended and Restated Loan Agreement along with related
security documents. Once finalized, the additional borrowing capacity is
expected to take effect upon closing of the Proposed Acquisition.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR PKCBQDBKBCNDRecent news on Touchstone Exploration
See all newsREG - Touchstone Explrtn. - ACQUISITION UPDATE
AnnouncementREG - Touchstone Explrtn. - Changes to the Board of Directors
AnnouncementREG - Touchstone Explrtn. - Employee Share Purchase & Director/PDMR Purchases
AnnouncementREG - Touchstone Explrtn. - ANNUAL 2024 FINANCIAL AND OPERATING RESULTS
AnnouncementREG - Touchstone Explrtn. - 2024 YEAR-END RESERVES
Announcement