Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Touchstone Exploration: A New Beginning

Published 06/11/2014, 02:02 AM

A new beginning

Post the successful consolidation of Petrobank in May 2014, a renewed Touchstone Exploration Inc (TO:TXP) is now moving forward with a C$28m, 21-well recompletion and infill drilling programme in Trinidad, which we expect will be financed by cash from operations, as well as from cash available from Petrobank, post consolidation. In line with guidance, we are also modelling a 30-well, C$29m capex spend in 2015, with the proposed 2015 drilling programme increasing our forecast oil production to over 3.0mb/d, and in turn generating sufficient cash flow to cover capex and potentially partially pay down old Touchstone outstanding debt. Currently trading below our core NAV of C$1.34/share, we find value in the story, should drilling and production targets be met.

Touchstone Exploration Chart

Share swap recapitalises Trinidadian effort

We are positive about Touchstone’s all-share union with Petrobank, which we see as a great opportunity to add capital to the current ongoing workover, reactivations and drilling programme in Trinidad. New capital allocation increases our Trinidadian production forecasts in 2015 from 2.4mb/d (before the merger) to 3.0mb/d, and in turn lifts our EBITDA estimate from C$40m to C$47m. While early days, we are also expecting increased investments in 2014 and 2015 to benefit from recently announced changes to Trinidad’s tax incentives, leading us to expect an increase in after-tax operating netbacks over our forecast period.

Beyond this year’s 21 wells

We are expecting Touchstone’s 2014 operations and financials to be consolidated into TXP (ie new Touchstone) from 14 May 2014, and with this our models assume that the proposed C$28m capex budget for 2014 will have to be funded mostly from Petrobank’s Q114 C$26m net cash position. Beyond 2014, we are forecasting the production average to increase to over 3.0mb/d, with our models realising after-tax cash generation in excess of proposed C$30-35m pa expenditures, which we estimate is sufficient to sustain drilling capex budgets over our forecast period.

Valuation: Revised higher post-Petrobank merger

Our core valuation makes use of the company’s 9.5mmbbl of 2P reserves (net of royalties) and Petrobank’s 1.4mmbbls of heavy oil reserves, realising a core NAV of C$1.34/share, while our RENAV, which includes an exploration licence for the East Brighton offshore exploration block, finds value at C$1.41/share.

To Read the Entire Report Please Click on the pdf File Below

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.