CALGARY, AB, Nov. 13, 2020 /CNW/ - Touchstone Exploration Inc.
("Touchstone", "we", "our", "us" or the "Company") (TSX: TXP)
(LSE: TXP) reports its unaudited financial and operating results
for the three months ended September 30,
2020. Selected information is outlined below and should be
read in conjunction with Touchstone's September 30, 2020 unaudited consolidated interim
financial statements and related Management's Discussion and
Analysis, both of which will be available on the Company's website
(www.touchstoneexploration.com) and under the Company's profile on
SEDAR (www.sedar.com). Unless otherwise stated, all financial
amounts herein are rounded to thousands of United States dollars.
Third Quarter Highlights
- Delivered average daily crude oil production of 1,310 barrels
per day ("bbls/d"), compared to 1,396 bbls/d in the second quarter
of 2020 and 1,729 bbls/d in the third quarter of 2019. As expected
and consistent with prior quarters, our crude oil production has
reduced due to the ongoing impact of natural declines, reflecting a
strategic focus on our Ortoire exploration program which has
limited capital investment and reduced discretionary field
maintenance expenditures.
- Invested $5,758,000 in
exploration activities, primarily focused on Chinook-1 drilling
operations and surface facility equipment expenditures relating to
Coho-1 tie-in operations.
- Generated funds flow from operations of $192,000 and an operating netback of $14.09 per barrel, representing increases from
the second quarter of 2020 based on higher realized crude oil sales
pricing.
- Continued to focus on discretionary cost reductions, with
operating costs on a per barrel basis decreasing by 10 percent and
general and administrative expenses declining by 9 percent relative
to the third quarter of 2019.
- Recognized a net loss of $703,000
($0.00 per share) compared to a net
loss of $1,053,000 ($0.01 per share) in the third quarter of 2019
despite a 47 percent reduction in petroleum revenues between the
corresponding periods.
- Maintained financial flexibility, exiting the quarter with cash
of $7,673,000 and raising gross
proceeds of approximately $30.3
million via a private placement completed on November 12, 2020.
Paul R. Baay, President and
Chief Executive Officer, commented:
"The Board's focus remains on our Ortoire property where
exploration activities to date have significantly exceeded
expectations. Our base crude oil production continues to
cover our operating costs, allowing us to direct our capital
exclusively to our ongoing exploration program. The
oversubscribed private placement completed post period end places
us in a strong position to continue the execution of our Ortoire
drilling, production testing and tie-in operations. We are
currently drilling our fourth exploration well, Cascadura Deep-1,
and we are in the process of finalizing a nine-month extension to
the exploration phase of the Ortoire licence. Alongside this, we
continue to negotiate a natural gas sales agreement with the
National Gas Company of Trinidad and
Tobago. I look forward to updating our shareholders as
operations progress."
Third Quarter Summary and Outlook
Despite the ongoing challenges as a result of COVID-19, we
continued to manage our business prudently during the quarter,
achieving positive cash flows despite limited developmental capital
activity since 2018 and progressing with our Ortoire exploration
program while maintaining safe and reliable operations. Our
investment focus remains on the Ortoire exploration block, as we
spudded our third drilling prospect (Chinook-1) in the quarter
which reached total depth in mid-October. We believe our operating
and general and administrative ("G&A") cost reductions
initiated in the second quarter of 2020 have enhanced our financial
resilience and financial capability to maintain our base production
and to deliver safe operations.
We remain focused on protecting the health of our employees and
communities while ensuring a decisive response for our investors.
We will continue to follow the advice of public health officials in
supporting our employees, their families and our business partners.
Our objective remains to bring our two natural gas exploration
discoveries onto production as soon as possible, which are expected
to not only increase cash flow but insulate us from further crude
oil price volatility from the continued effects of COVID-19.
Drilling operations are ongoing at our Cascadura Deep-1 prospect,
and we anticipate commencing production testing at our Chinook-1
discovery upon completion.
The rapid decline in oil prices had a negative impact on our
cash flows during the nine months ended September 30, 2020 and our projections for the
balance of the year. Ongoing weakness in commodity prices resulting
from COVID-19 impacts on demand and market volatility may adversely
affect our future financial and operational results. We continue to
monitor the situation and economic environment, and we will
continue to adapt our business operations and exploration program
to ensure that we preserve and grow long-term shareholder
value.
On the basis of the successful results from the first three
Ortoire exploration wells, we undertook a private placement that
closed on November 12, 2020 in order
to support the completion of the initial phase of exploration work
on the Ortoire block. The private placement raised gross proceeds
of approximately $30.3 million by way
of a placing of 24,291,866 common shares at a price of 95 pence (C$1.64).
We believe this enhanced liquidity will allow us to continue with
our exploration program at an optimal pace, with a focus on
bringing our initial exploration discoveries onto production in
2021.
Financial and Operating Results Summary
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|
|
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|
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Three months
ended
September 30,
|
%
change
|
Nine months
ended
September 30,
|
%
change
|
|
2020
|
2019
|
|
2020
|
2019
|
|
|
|
|
|
|
|
|
Operating
Highlights
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|
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|
Average daily oil
production(1) (bbls/d)
|
1,310
|
1,729
|
(24)
|
1,431
|
1,871
|
(24)
|
|
|
|
|
|
|
|
Net wells
drilled
|
-
|
0.8
|
n/a
|
-
|
0.8
|
n/a
|
|
|
|
|
|
|
|
Brent benchmark
price ($/bbl)
|
42.91
|
61.95
|
(31)
|
41.15
|
64.65
|
(36)
|
|
|
|
|
|
|
|
Operating
netback(2) ($/bbl)
|
|
|
|
|
|
|
Realized sales
price
|
39.20
|
56.67
|
(31)
|
38.54
|
58.21
|
(34)
|
Royalties
|
(11.17)
|
(16.61)
|
(33)
|
(10.82)
|
(16.32)
|
(34)
|
Operating
expenses
|
(13.94)
|
(15.50)
|
(10)
|
(13.06)
|
(14.82)
|
(12)
|
|
14.09
|
24.56
|
(43)
|
14.66
|
27.07
|
(46)
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Financial
Highlights
|
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($000's except as
indicated)
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|
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Petroleum
sales
|
4,725
|
9,011
|
(48)
|
15,178
|
29,734
|
(49)
|
|
|
|
|
|
|
|
Cash flow from (used
in) operating activities
|
4,126
|
(1,205)
|
n/a
|
2,129
|
3,364
|
(37)
|
|
|
|
|
|
|
|
Funds flow from
operations(3)
|
192
|
1,082
|
(82)
|
999
|
4,822
|
(79)
|
Per share – basic and
diluted(2)(3)
|
0.00
|
0.01
|
(100)
|
0.01
|
0.03
|
(67)
|
|
|
|
|
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Net loss
|
(703)
|
(1,053)
|
(33)
|
(12,685)
|
(2,071)
|
100
|
Per share – basic and
diluted
|
(0.00)
|
(0.01)
|
(100)
|
(0.07)
|
(0.01)
|
100
|
|
|
|
|
|
|
|
Exploration capital
expenditures
|
5,758
|
3,234
|
78
|
8,830
|
4,275
|
100
|
Development capital
expenditures
|
211
|
517
|
(59)
|
523
|
1,231
|
(58)
|
Total capital
expenditures
|
5,969
|
3,751
|
59
|
9,353
|
5,506
|
70
|
|
|
|
|
|
|
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Working capital
(surplus) deficit(2)
|
|
|
|
(869)
|
805
|
n/a
|
Principal non-current
balance of term loan
|
|
|
|
15,000
|
11,328
|
32
|
Net
debt(2) – end of period
|
|
|
|
14,131
|
12,133
|
16
|
|
|
|
|
|
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Share Information
(000's)
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|
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|
|
|
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Weighted average
shares outstanding – basic and diluted
|
184,277
|
160,688
|
15
|
179,112
|
154,192
|
16
|
Outstanding shares –
end of period
|
|
|
|
184,408
|
160,688
|
15
|
|
|
|
|
|
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Notes:
|
(1)
|
The Company's
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
since the Company's oil sales volumes typically represent blends of
more than one type of crude oil.
|
(2)
|
Non-GAAP financial
measure that does not have a standardized meaning prescribed by
International Financial Reporting Standards ("IFRS") and therefore
may not be comparable with the calculation of similar measures
presented by other companies. See "Advisories: Non-GAAP
Measures" for further information.
|
(3)
|
Additional GAAP term
included in the Company's consolidated statements of cash flows.
Funds flow from operations represents net loss excluding non-cash
items. See "Advisories: Non-GAAP Measures" for further
information.
|
Operating results
In the third quarter of 2020, we invested $5,758,000 in exploration activities, which were
predominantly Chinook-1 drilling and Coho-1 tie-in expenditures.
The Chinook-1 well reached its target depth on October 13, 2020, and we are awaiting regulatory
approval to commence installation of the Coho-1 surface facility
equipment and pipeline operations.
We conducted minimal developmental activity in the quarter, with
average crude oil sales declining to 1,310 bbls/d, a 6 percent
decrease relative to the 1,396 bbls/d produced in the second
quarter of 2020 and a 24 percent reduction from 1,729 bbls/d
produced in the third quarter of 2019. Our crude oil sales volumes
have decreased due to the ongoing impact of natural declines
associated with limited capital investment since the final two
wells of the 2018 drilling program were brought onstream in
January 2019. Further, since
March 2020 we have deliberately
reduced discretionary operating expenditures in response to lower
crude oil pricing, focusing on performing well interventions on
those deemed high priority. Development capital activity for the
fourth quarter of 2020 is expected to be minimal as we continue to
focus on our exploration program.
Financial results
We reported nominal funds flow from operations of $192,000 in the third quarter of 2020 versus
$1,082,000 generated in the 2019
third quarter. The decrease reflected a 31 percent reduction in our
average realized crude oil prices as a result of the impact of the
COVID-19 pandemic and a 24 percent decline in crude oil production
from limited capital and operational investment.
We recorded a net loss of $703,000
($0.00 per share) in the third
quarter of 2020 versus a net loss of $1,053,000 ($0.01
per share) in the prior year equivalent quarter despite a 47
percent reduction in petroleum revenues over the equivalent period.
The decrease in petroleum revenues was driven by a 24 percent
decline in crude oil production, a 31 percent reduction in realized
average crude oil pricing, and a corresponding 49 percent decrease
in royalty expenses. We continued with our cost-saving initiatives
in the third quarter, as quarterly operating costs decreased 32
percent and 10 percent on an absolute and per barrel basis from the
third quarter of 2019. In addition, we reduced third quarter 2020
G&A expenses by 9 percent in comparison to the third quarter of
2019. Relative to the third quarter of 2019, current income tax
expense decreased by $1,146,000 or 95
percent, reflective of $1,087,000 of
supplemental petroleum taxes incurred in the prior year third
quarter from higher realized crude oil pricing.
Touchstone exited the quarter with a working capital surplus of
$869,000, $15
million withdrawn on our term credit facility and net debt
of $14,131,000. Our liquidity is
augmented by $5 million of undrawn
credit capacity, as well as the net proceeds from the private
placement that closed subsequent to quarter-end.
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".
Advisories
Non-GAAP Measures
This news release contains terms commonly used in the oil
and natural gas industry, including funds flow from operations,
funds flow from operations per share, operating netback, working
capital and net debt. These terms do not have a standardized
meaning prescribed under Generally Accepted Accounting Principles
("GAAP") or IFRS and may not be comparable to similar measures
presented by other companies. Shareholders and investors are
cautioned that these measures should not be construed as
alternatives to cash flow from operating activities, net earnings,
net earnings per share, total assets, total liabilities, or other
measures of financial performance as determined in accordance with
GAAP. Management uses these Non-GAAP measures for its own
performance measurement and to provide stakeholders with measures
to compare the Company's operations over time.
Funds flow from operations is an additional GAAP measure
included in the Company's consolidated statements of cash flows.
Funds flow from operations represents net earnings (loss) excluding
non-cash items. Touchstone considers funds flow from operations to
be an important measure of the Company's ability to generate the
funds necessary to finance capital expenditures and repay debt. The
Company calculates funds flow from operations per share by dividing
funds flow from operations by the weighted average number of common
shares outstanding during the applicable period.
The Company uses operating netback as a key performance
indicator of field results. Operating netback is presented on a
total and per barrel basis and is calculated by deducting royalties
and operating expenses from petroleum sales. If applicable, the
Company also discloses operating netback both prior to realized
gains or losses on derivatives and after the impacts of derivatives
are included. Realized gains or losses represent the portion of
risk management contracts that have settled in cash during the
period, and disclosing this impact provides Management and
investors with transparent measures that reflect how the Company's
risk management program can impact netback metrics. The Company
considers operating netback to be a key measure as it demonstrates
Touchstone's profitability relative to current commodity prices.
This measurement assists Management and investors with evaluating
operating results on a historical basis.
The Company closely monitors its capital structure with a goal
of maintaining a strong financial position in order to fund current
operations and the future growth of the Company. The Company
monitors working capital and net debt as part of its capital
structure to assess 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) non-current amount of senior secured
debt.
Please refer to the Company's September
30, 2020 Management's Discussion and Analysis for
reconciliations of Non-GAAP Measures contained herein to applicable
GAAP measures.
Forward-Looking Statements
Certain information provided in this news release 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 news release may include, but
is not limited to, statements relating to the Company's exploration
plans and strategies, including anticipated drilling, timing,
production testing, development, tie-in, facilities construction,
and ultimate production from exploration wells; the Company's
expectation regarding future demand for the Company's petroleum
products and economic activity in general; the impacts of COVID-19
on the Company's business and measures taken in response thereto;
uncertainty regarding COVID-19 and the impact it will have on
future petroleum pricing, global financial markets and the
Company's operations; and the sufficiency of resources and
available financing 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 2019 Annual
Information Form dated March 25, 2020
which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this news release are
made as of the date hereof, and except as may be required by
applicable securities laws, the Company assumes no obligation to
update publicly or revise any forward-looking statements made
herein or otherwise, whether as a result of new information, future
events or otherwise.
SOURCE Touchstone Exploration Inc.