REG - Touchstone Explrtn. - THIRD QUARTER 2022 FINANCIAL AND OPERATING RESULTS

Touchstone ExplorationAnnouncement

10/11/2022 07:00

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RNS Number : 9110F  Touchstone Exploration Inc.  10 November 2022

 

THIRD QUARTER 2022 FINANCIAL AND OPERATING RESULTS

 

CALGARY, ALBERTA (November 10, 2022) - Touchstone Exploration Inc.
("Touchstone", "we", "our", "us" or the "Company") (TSX, LSE: TXP) reports its
operating and financial results for the three and nine months ended September
30, 2022. Selected information is outlined below and should be read in
conjunction with our September 30, 2022 unaudited interim condensed
consolidated financial statements and related Management's discussion and
analysis, both of which will be available under our profile on SEDAR
(www.sedar.com (http://www.sedar.com/) ) and on our website
(www.touchstoneexploration.com (http://www.touchstoneexploration.com/) ).
Unless otherwise stated, all financial amounts herein are rounded to thousands
of United States dollars.

 

Third Quarter 2022 Financial and Operational Highlights

·      Produced quarterly average crude oil volumes of 1,272 bbls/d,
representing a 10 percent decrease relative to the preceding quarter and a 5
percent decrease from the 1,333 bbls/d produced in the third quarter of 2021,
as three key wells were down in the quarter.

·      Realized petroleum sales of $9,933,000 from an average crude oil
price of $84.85 per barrel compared to $7,650,000 from an average realized
price of $62.37 per barrel in the comparative quarter of 2021.

·      Generated an operating netback of $37.55 per barrel, a 17 percent
decrease from the second quarter of 2022 and a 35 percent increase from $27.77
per barrel in the third quarter of 2021, with the variances primarily
attributed to movements in realized crude oil pricing.

·      Recognized current income tax expenses of $1,381,000 in the
quarter compared to $377,000 in the third quarter of 2021, driven by
$1,173,000 in supplemental petroleum tax ("SPT") expenses based on our average
realized oil price exceeding the $75.00 per barrel threshold in the period.

·      Our funds flow from operations was $290,000 in the quarter
compared to $1,073,000 in the prior year equivalent quarter, and our year to
date funds flow from operations increased 1 percent from the same period of
2021.

·      Recognized a net loss of $778,000 in the quarter compared to a
net loss of $51,000 reported in the same period of 2021, principally driven by
higher current income tax expenses.

·      Capital investments of $2,899,000 primarily focused on facility
and pipeline expenditures related to the Coho-1 natural gas facility and
investments directed to the Cascadura natural gas and liquids facility.

·      Exited the quarter with cash of $8,732,000, a working capital
deficit of $4,537,000 and a $28,500,000 term credit facility balance,
resulting in a net debt position of $27,037,000.

Post Period-End Highlights

·      Delivered first natural gas from the Coho facility on October 10,
2022, with net October sales over 19 operating days averaging 7.3 MMcf/d
(1,212 boe/d).

·      In conjunction with initial Coho production, we sold the
gathering pipeline from our Coho facility to the third party natural gas
facility for net proceeds of $1.2 million.

·      Daily crude oil sales averaged 1,304 bbls/d in October 2022 with
a realized price of $81.32 per barrel.

·      Clearing of the surface location expansion area has been
completed at the Cascadura facility site.

Paul Baay, President and Chief Executive Officer, commented:

 

"The focus of the third quarter was the completion of the Coho natural gas
facility which is currently on production, providing us with our first natural
gas revenues in October. Our base oil production continues to generate
positive operating cash flows while we progress on construction of the
Cascadura natural gas and liquids facility. Production from our Cascadura
discoveries will mark an inflection point for Touchstone, both from a cash
flow and production volume basis. As we plan for our next stage of production
growth, we are targeting further expansion of our onshore asset portfolio,
through both the Trinidad 2022 onshore bid round and by considering other
licence acquisition opportunities to expand our exploration and development
acreage in prospective areas in Trinidad."

 

Financial and Operating Results Summary

 

                                                          Three months ended September 30,      % change  Nine months ended     % change

                                                                                                          September 30,
                                                          2022               2021               2022                 2021

 Operational

 Average daily production (bbls/d)
 Crude oil((1))                                           1,272              1,333              (5)       1,362      1,344      1
 NGLs                                                     -                  -                  -         -          3          (100)
 Average daily production                                 1,272              1,333              (5)       1,362      1,347      1

 Average realized prices((2)) ($/bbl)
 Crude oil                                                84.85              62.37              36        88.80      58.09      53
 NGLs                                                     -                  -                  -         -          46.32      (100)
 Realized commodity price                                 84.85              62.37              36        88.80      58.06      53

 Operating netback ($/bbl)
 Realized commodity price((2))                            84.85              62.37              36        88.80      58.06      53
 Royalties((2))                                           (29.14)            (19.36)            51        (30.97)    (17.75)    74
 Operating expenses((2))                                  (18.16)            (15.24)            19        (17.60)    (14.90)    18
 Operating netback((2))                                   37.55              27.77              35        40.23      25.41      58

 Financial
 ($000's except per share amounts)

 Petroleum sales                                          9,933              7,650              30        33,025     21,356     55

 Cash from operating activities                           3,092              384                705       6,941      158        4,293

 Funds flow from operations                               290                1,073              (73)      2,849      2,816      1

 Net loss                                                 (778)              (51)               1,425     (1,276)    (795)      61
 Per share - basic and diluted                            (0.00)             (0.00)             -         (0.01)     (0.00)     n/a

 Exploration capital expenditures                         2,692              7,542              (64)      7,498      17,160     (56)
 Development capital expenditures                         207                2,315              (91)      1,323      2,567      (48)
 Capital expenditures((2))                                2,899              9,857              (71)      8,821      19,727     (55)

 Working capital deficit((2))                                                                             4,537      4,657      (3)
 Principal long-term bank loan                                                                            22,500     7,125      216
 Net debt((2)) - end of period                                                                            27,037     11,782     129

 Share Information (000's)
 Weighted average shares outstanding - basic and diluted  212,647            210,732            1         211,898    209,968    1
 Outstanding shares - end of period                                                                       213,113    210,732    1

 

Notes:

(1)   References to crude oil production volumes in the above table and
elsewhere in this announcement refer to light, medium and heavy crude oil
product types as defined in National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities. Our reported crude oil production is a
mix of light and medium crude oil and heavy crude oil for which there is not a
precise breakdown given our oil sales volumes typically represent blends of
more than one type of crude oil.

(2)   Non-GAAP financial measure. See "Advisories: Non-GAAP Financial
Measures" for further information.

Operational Update

 

Coho

 

On October 10, 2022, we achieved first natural gas production from our Coho
facility located on the Ortoire block, in which we have an 80 percent
operating working interest. In conjunction with initial production, we sold
the 2.7-kilometre, 6-inch gathering line tying in the Coho facility to the
Baraka natural gas facility to The National Gas Company of Trinidad and Tobago
Limited for net proceeds of $1,200,000.

 

Over 19 operational days in October, the Coho-1 well delivered average net
October sales of 7.3 MMcf/d (approximately 1,212 boe/d) on a controlled choke.
We will continue to optimize production from the well as conditions stabilize.

 

Cascadura

 

On August 16, 2022, we received a Certificate of Environmental Clearance to
conduct development operations within the Cascadura area of the Ortoire block
from the Trinidad and Tobago Environmental Management Authority. On September
15, 2022, we received approval from the Forestry Division of the Trinidad and
Tobago Ministry of Agriculture, Land and Fisheries to commence lease building
operations.

 

Work on the surface location is progressing, as the clearing of the lease
expansion area has been completed, and we are currently levelling and
preparing the area for pouring of the concrete foundation. Components for the
facility are currently being fabricated by local contractors or being imported
to Trinidad in completed form. Once the concrete foundation has been
completed, delivery of the facility equipment will commence. We are currently
targeting completion of the facility by the end of the first quarter of 2023.

 

Licences and work obligations

 

Under the terms of our lease operating agreements with Heritage Petroleum
Company Limited ("Heritage"), we are required to fulfill minimum work
obligations on an annual basis over the specific licence term. With respect to
these obligations, we have four development wells and three heavy workover
commitments to perform in 2022. Touchstone has notified Heritage its intent to
defer the development drilling commitments to 2023.

 

We have completed all of our minimum work commitment obligations pursuant to
our Ortoire block exploration and production licence. In March 2022, we were
notified that the Trinidad and Tobago Ministry of Energy and Energy Industries
approved an extension to the exploration period of the licence to July 31,
2026. The licence amendment agreement has been approved by the Trinidad and
Tobago government and is awaiting formal execution. Upon execution, we will be
required to drill three exploration wells prior to the end of the amended
term.

 

Trinidad fiscal regime

 

In October 2022, the Trinidad and Tobago government proposed an amendment to
the current SPT regime, allowing small onshore liquids producers to access the
increased $75.00 SPT threshold incentive post 2022. If enacted, this fiscal
measure will potentially reduce the SPT expenses applicable to liquids
produced from our two Trinidadian subsidiaries in 2023 and beyond. More
importantly, we welcome the news that an energy sector review will be
performed and are hopeful that additional measures to support the Trinidad
energy sector are considered.

 

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.

Mr. Paul Baay, President and Chief Executive
Officer                             Tel: +1 (403)
750-4487

Mr. Scott Budau, Chief Financial Officer

Mr. James Shipka, Chief Operating Officer

 

Shore Capital (Nominated Advisor and Joint Broker)

Daniel Bush / Toby Gibbs / Iain Sexton
                                    Tel: +44
(0) 207 408 4090

 

Canaccord Genuity (Joint Broker)

Adam James / Gordon
Hamilton
                        Tel: +44 (0) 207 523 8000

 

Camarco (Financial PR)

Billy Clegg / Emily Hall / Lily Pettifar
                                    Tel:
+44 (0) 203 781 8330

 

Advisories

 

Non-GAAP Financial Measures

 

Certain financial measures in this announcement do not have a standardized
meaning as prescribed by International Financial Reporting Standards ("IFRS"
or "GAAP") and therefore are considered non-GAAP financial measures. These
financial measures may not be comparable to similar financial measures
disclosed by other issuers. Readers are cautioned that any 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, liquidity and
ability to generate funds to finance its operations. Below is a description of
the non-GAAP financial measures, non-GAAP ratios, capital management measures
and supplementary financial measures disclosed herein.

 

Funds flow from operations

 

Funds flow from operations is included in the Company's consolidated
statements of cash flows. Touchstone considers funds flow from operations to
be a key measure of 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.

 

Operating netback

 

The Company 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 royalties and operating expenses from petroleum sales. Operating
netback per barrel is a non-GAAP ratio calculated by dividing the operating
netback by crude oil and NGL sales volumes for the period.

 

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 flows 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

 

Touchstone closely monitors its capital structure with a goal of maintaining a
strong financial position to fund current operations and future growth.
Working capital and net debt are capital management measures used by
Management to steward the Company's overall debt position and assess overall
financial strength. Management monitors working capital and net debt 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 as current assets minus current liabilities as they appear on the
consolidated statements of financial position. Net debt is calculated by
summing the Company's working capital and the principal (undiscounted)
long-term amount of senior secured debt.

 

Supplementary Financial Measures

 

The following supplementary financial measures are disclosed herein.

 

Realized commodity price per barrel - is comprised of petroleum sales as
determined in accordance with IFRS, divided by the Company's total production
volumes for the period.

 

Royalties per barrel - is comprised of royalties as determined in accordance
with IFRS, divided by the Company's total production volumes for the period.

 

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

 

Refer to the "Non-GAAP Financial Measures" advisory section in the Company's
September 30, 2022 Management's discussion and analysis for reconciliations of
non-GAAP financial measures included herein to applicable GAAP measures.

 

Forward-Looking Statements

 

Certain information provided in this announcement may constitute
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 "expects",
"plans", "anticipates", "believes", "intends", "estimates", "projects",
"potential" and similar expressions, or are events or conditions that "will",
"would", "may", "could" or "should" occur or be achieved.

 

Forward-looking statements in this announcement may include, but are not
limited to, statements relating to the Company's development and exploration
plans and strategies, including the number of development and exploration
opportunities, anticipated completion of the Cascadura facility and the timing
thereof, estimated future Cascadura natural gas and liquids production, the
anticipated reduction of future income taxes if proposed fiscal measures are
enacted into law, and Touchstone's current and future financial position
including the sufficiency of resources to fund future capital expenditures and
maintain financial liquidity. 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 2021 Annual Information Form dated
March 25, 2022 which is available under the Company's profile on SEDAR
(www.sedar.com (http://www.sedar.com/) ) 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.

 

Oil and Gas Measures

 

Where applicable, natural gas has been converted to barrels of oil equivalent
based on six thousand cubic feet to one barrel of oil. The barrel of oil
equivalent rate is based on an energy equivalent conversion method primarily
applicable at the burner tip, and given that the value ratio based on the
current price of crude oil as compared to natural gas is significantly
different than the energy equivalency of the 6:1 conversion ratio, utilizing
the 6:1 conversion ratio may be misleading as an indication of value.

 

Abbreviations

 

boe                  barrels of oil equivalent

boe/d               barrels of oil equivalent per day

Mcf                  thousand cubic feet

MMcf/d             million cubic feet per day

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