Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

May 30, 2012 17:36 ET

Touchstone Exploration Announces Strong Second Quarter 2012 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire - May 30, 2012) - Touchstone Exploration Inc. (TSX VENTURE:TAB) ("Touchstone" or the "Company") reported its operating and financial results for the second quarter of 2012. The Company is currently reporting under International Financial Reporting Standards ("IFRS") and all values in this release are in thousands of United States dollars unless otherwise stated.

Highlights for the three months ended March 31, 2012 are noted below:

  • The Company's quarterly oil production averaged 1,012 barrels per day, 9 percent higher than the preceding quarter and 229 percent greater than the corresponding 2011 quarter.
  • With average realized selling prices of $102.18 per barrel received in the quarter, petroleum revenue increased 32 percent from the preceding quarter and 280 percent from the comparative 2011 quarter.
  • Funds flow from operations1 was $1,935 or $0.02 per basic share, the Company's first positive quarterly figure. On a year to date basis, funds flow from operations was $1,790 or $0.02 per basic share.
  • Funds flow netbacks1 increased 567 percent from $(4.54) in the second quarter of 2011 to $21.22.
  • The Company drilled three new wells and performed nine recompletions in the quarter, thereby adding five new wells and seventeen recompletions in the current fiscal year.
  • The Company continues to plan to follow its 2012 calendar year capital program, drilling and recompleting a number of wells in the second half of the fiscal year and into the first quarter of 2013.
  • Subsequent to quarter end, Touchstone obtained a new long-term loan, effectively replacing the existing vendor take-back note payable with extended payment terms.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended March 31 Six months ended March 31
($000's except share and per share amounts) 2012 2011 2012 2011
Financial
Petroleum revenue net of royalties $ 6,476 $ 1,418 $ 12,345 $ 2,060
Net loss (1,509) (673) (2,093) (1,196)
Per share (basic and diluted) (0.01) (0.01) (0.02) (0.03)
Funds flow from operations1 1,935 (135) 1,790 (377)
Per share (basic)1 0.02 (0.00) 0.02 (0.01)
Operating netback1 ($/Bbl) 50.44 37.52 49.96 35.06
Funds flow netback1 ($/Bbl) 21.22 (4.54) 10.19 (8.60)
Capital expenditures 4,148 1,906 6,991 3,564
Assets acquired from acquisitions - 8,084 - 8,084
Total assets (end of period) 128,630 25,136 128,630 25,136
Total debt1 (end of period) 26,395 - 26,395 -
Shareholders' equity (end of period) 41,805 20,016 41,805 20,016
Weighted average shares outstanding
Basic and diluted 108,928,242 52,316,961 108,928,242 44,554,579
Outstanding shares (end of period)
Basic and diluted 108,928,242 60,359,906 108,928,242 60,359,906
Operational
Average daily production (Bbls/day) 1,012 308 969 236
Average realized selling prices ($/Bbl) 102.18 89.50 99.02 84.50
1The terms "fund flows from operations", "funds flow from operation per share", "operating netbacks", "funds flow netbacks" and "total debt" are non-GAAP measures. Please see the "Non-GAAP measures" discussion in this news release.

The Company's operating netback on a per barrel basis increased during the quarter and year to date due to an increase in production and an increase in realized selling prices. For the three months ended March 31, 2012, the Company's gross sales were 92,114 barrels which represented an increase of 233 percent from the 27,683 barrels sold in the corresponding 2011 quarter. The average realized prices received increased 14 percent from $89.50 per barrel in Q2 2011 to $102.18 per barrel in Q2 2012. For the six months ended March 31, 2012, the Company's gross sales were 177,257 barrels of oil (2011 - 43,002 Bbls) which generated gross revenue of $17,552 and net revenue of $8,856 compared to $3,634 and $1,508 for the six months ended March 31, 2011, respectively. The average realized selling price received by the Company was $99.02 per barrel for the six months ended March 31, 2012 compared to $84.50 for the comparative 2011 period.

The year-over-year increase in oil production is due to the Company drilling and recompleting new wells coupled with the acquisitions of existing production from the Coora, New Dome and South Palo Seco blocks and the blocks acquired in the August 19, 2011 acquisition of the Primera group of companies.

The Company's funds flow netbacks increased by 567 percent and 218 percent for the three and six month periods ended March 31, 2012 compared to the same comparative periods in 2011, respectively. General and administrative expenses per barrel of oil decreased based on stable quarter-over-quarter spending and due to increased production. This was offset by increased transaction costs, finance costs (excluding non-cash debt and decommission obligation accretion) and income taxes.

CHAIRMAN'S REPORT

The second quarter ended March 31, 2012 was another successful quarter for the Company. The Company recorded its seventh straight quarter of production growth and achieved its first quarter of positive funds flow from operations.

Operationally during the second quarter, the Company drilled three new wells, performed nine recompletions and three re-activations. On a year to date basis, the Company has drilled five new wells, recompleted seventeen wells and re-activated seven wells. Through initiated cost saving strategies, the Company has achieved stable quarter-over-quarter operational, general and administrative spending, which coupled with increasing production allowed for increased operational and funds flow netbacks.

Subsequent to the quarter, the Company announced the closing of its $10.0 million disposition of its 33.8 percent non-operated interest in the Moruga Block in Trinidad. In addition, the Company announced that it has arranged a long-term loan to repay the existing vendor take-back note payable which in part financed the acquisition of the Primera group of companies. The new financing allows for extended payment terms. The Company also announced that it has reached an agreement to purchase $4.0 million (CAD) of the existing $6.0 million (CAD) convertible debentures, thereby decreasing its total debt position.

Looking forward to the third quarter and beyond, with the decreased total debt and extended long-term debt repayment terms, the Company is expecting growth as additional production volumes will be achieved through the carry-forward of our 2012 calendar year capital drilling program. The third quarter will see the Company recommence its drilling program with operations scheduled in WD-8, Coora, and Sunty. The Company will drill up to seventeen additional wells depending on available associated approvals. The Company has put in place a number of new initiatives to reduce down time of new wells that are brought onto production either through the recompletion or drilling programs. The Company has also put in place a technical team to monitor each well on a continual basis at the field level to make instantaneous adjustments to assure continual production from all new wells.

The Company would like to thank Ms. Vashti Bhairoo, Mrs. Tricia Thong and Mr. Kenrick George, the three recipients of the employee of the month award during the quarter. Through their hard work, they displayed dedication to the Company. For their efforts, the Company made donations to local charities on their behalf.

FINANCIAL STATEMENTS

Below is selected financial statement information as at and for the three and six months ended March 31, 2012 with 2011 comparative data. For full disclosure of our unaudited condensed consolidated financial statements and the related Management, Discussion and Analysis, please visit our website (www.touchstoneexploration.com) or SEDAR.

TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
(000's of US$) March 31, 2012 September 30, 2011 October 1, 2010
ASSETS
Current assets
Cash and cash equivalents $ 2,878 $ 7,118 $ 3,228
Accounts receivable 5,587 4,897 662
Inventory 110 165 -
Prepaid expenses and deposits 446 199 54
Promissory note receivable - - 185
Assets held for sale 10,000 10,000 -
19,021 22,379 4,129
Investment in associate 5,122 5,024 -
Exploration and evaluation assets 30,765 30,745 -
Property and equipment 61,431 56,765 5,139
Goodwill 12,291 12,291 2,312
$ 128,630 $ 127,204 $ 11,580
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 7,344 $ 6,547 $ 347
Income taxes payable 12,024 10,914 37
Current portion of note payable 23,362 11,707 -
42,730 29,168 384
Liability component of convertible debentures 3,033 2,587 -
Embedded derivatives related to convertible debentures 1,460 1,371 -
Decommissioning obligations 7,430 6,998 -
Note payable - 11,650 -
Deferred income taxes 32,172 31,948 2,241
86,825 83,722 2,625
Shareholders' equity
Share capital 40,764 15,844 9,567
Warrants 3,834 3,834 -
Share subscriptions - 24,947 -
Contributed surplus 1,597 1,154 183
Accumulated deficit (4,390) (2,297) (795)
41,805 43,482 8,955
$ 128,630 $ 127,204 $ 11,580
TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(unaudited)
(000's of US$) Three months ended March 31 Six months ended March 31
2012 2011 2012 2011
Income
Petroleum $ 9,412 $ 2,478 $ 17,552 $ 3,634
Royalties (2,936) (1,060) (5,207) (1,574)
Share of (loss) earnings of an associate (333) - 98 -
Interest and other 53 3 170 4
6,196 1,421 12,613 2,064
Expenses
Operating costs 1,829 379 3,489 552
General and administrative 1,057 1,085 2,173 1,612
Transaction costs (22) 41 433 75
Depletion and depreciation 1,315 179 2,416 255
Share-based payments 246 232 443 438
Loss on unrealized embedded derivatives 218 - 38 -
Foreign exchange loss 225 12 337 11
Finance expenses 1,018 38 2,051 38
5,886 1,966 11,380 2,981
Earnings (loss) before income taxes 310 (545) 1,233 (917)
Income taxes
Current expense 1,021 39 3,102 191
Deferred expense 798 89 224 88
1,819 128 3,326 279
Net loss and comprehensive loss for the period $ (1,509) $ (673) $ (2,093) $ (1,196)
Net loss per share:
Basic and diluted $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Weighted average number of common shares outstanding (000's):
Basic and diluted 108,928 52,317 108,928 44,555
TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31 Six months ended March 31
(000's of US$) 2012 2011 2012 2011
Cash provided by (used in):
Cash flows from operating activities:
Net loss for the period $ (1,509) $ (673) $ (2,093) $ (1,196)
Items not involving cash from operations:
Depletion and depreciation 1,315 179 2,416 255
Share-based payments 246 232 443 438
Loss on unrealized embedded derivatives 218 - 38 -
Unrealized foreign exchange 151 - 151 -
Accretion on liability component of convertible debenture 202 - 346 -
Accretion on decommissioning obligations 181 38 363 38
Deferred income tax expense 798 89 224 88
Share of (loss) earnings of an associate 333 - (98) -
Change in non-cash working capital (6,121) (760) (3,405) (973)
(4,186) (895) (1,615) (1,350)
Cash flows from financing activities:
Proceeds from issuance of share capital - 12,859 - 12,859
Share issuance costs - (685) (27) (1,040)
- 12,174 (27) 11,819
Cash flows from investing activities:
Exploration and evaluation expenditures - - (20) -
Property and equipment expenditures (4,148) (1,906) (6,991) (3,564)
Acquisitions - (8,084) - (8,084)
Change in non-cash working capital 4,102 (981) 4,413 115
(46) (10,971) (2,598) (11,533)
Effect of foreign exchange on cash and cash equivalents (10) - - -
Change in cash and cash equivalents (4,242) 308 (4,240) (1,064)
Cash and cash equivalents, beginning of period 7,120 1,856 7,118 3,228
Cash and cash equivalents, end of period $ 2,878 $ 2,164 $ 2,878 $ 2,164
Cash paid during the period for interest $ 517 $ - $ 1,138 $ -
Cash paid during the period for income taxes $ 1 $ 126 $ 1,805 $ 128

Touchstone Exploration Inc. is 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 internationally. The Company is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Venture Exchange under the symbol "TAB". Please see the latest corporate presentation on the Touchstone Exploration Inc. website at www.touchstoneexploration.com.

READER ADVISORY

Forward-looking Statements

The information herein contains forward-looking statements and assumptions. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and other similar expressions. Such statements represent the Company's internal projections, estimates or beliefs concerning, future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), future financing sources, plans for and results of drilling activity, environmental matters, future commodity prices, the magnitude of oil and gas reserves, business prospects and opportunities, among other things. By their nature, forward-looking statements are subject to numerous known and unknown risks and uncertainties that could significantly affect anticipated results in the future and accordingly, actual results may differ materially from those predicted. Although the Company's management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

The Company is exposed to numerous operational, technical, financial and regulatory risks and uncertainties, many of which are beyond its control and may significantly affect anticipated future results. Operations may be unsuccessful or delayed as a result of competition for services, supplies and equipment, mechanical and technical difficulties, ability to attract and retain qualified employees on a cost-effective basis, commodity and marketing risk and seasonality. The Company is subject to significant drill risks and uncertainties including the ability to find oil reserves on an economic basis and the potential for technical problems that could lead to well blowouts and environmental damage. The Company is exposed to risks relating to the inability to obtain timely regulatory approvals, surface access, access to third party gathering and processing facilities, transportation and other third party related operation risks. The company is subject to industry conditions including changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced. There are uncertainties in estimating the Company's reserve base due to the complexities in estimated future production, costs and timing of expenses and future capital. The financial risks the Company is exposed to include, but are not limited to, the impact of general economic conditions in Canada and the Republic of Trinidad and Tobago, the ability to access sufficient capital from internal and external sources, changes in income tax laws or changes in tax law and incentive programs relating to the oil and natural gas industry and fluctuations in commodity prices, interest rates, the U.S./Canadian dollar exchange rate and the U.S./Trinidad and Tobago dollar exchange rate. The Company is subject to regulatory legislation, the compliance with which may require significant expenditures and non-compliance with which may result in fines, penalties or production restrictions.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise, and as such, undue reliance should not be placed on forward-looking statements. Readers are also cautioned that the foregoing list of factors and assumptions is not exhaustive. The Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Additional information on these and other factors that could affect the Company's operations and financial results are included elsewhere herein and in reports on file with Canadian securities regulatory authorities and may be accessed through the Internet on the Canadian System for Electronic Document Analysis and Retrieval website (www.sedar.com).

Non-GAAP Measures

Included in this press release are references to financial measures commonly used in the oil and gas industry such as funds flow from operations, funds flow from operations per share, total debt, operating netback and corporate netbacks. These terms do not have a standardized meaning under IFRS and may not be comparable to similarly titled measures reported by other companies.

Funds flow from operations represents cash flow from operating activities before changes in non-cash working capital. Management believes that in addition to net earnings and cash flows from operating activities, funds flow from operations is a useful financial measurement which assists in demonstrating the Company's ability to fund capital expenditures necessary for future growth or to 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 period.

Total debt is calculated by summing the Company's debt per the financial statements (not including working capital and derivative instruments). The Company uses this information to assess its true debt position.

The Company uses operating netbacks as a key performance indicator of field results. Operating netbacks are presented on a per barrel basis and are calculated by deducting royalties and operating expenses from petroleum sales. Operating netbacks are a useful measure to compare the Company's operations with those of its peers.

The Company also uses funds flow netbacks as a key performance indicator of results. Funds flow netbacks are presented on a per barrel basis and are calculated by deducting royalties, operating expenses, general and administrative expenses, transaction costs, finance expenses excluding accretion and current income tax expenses from petroleum sales. Funds flow netbacks are a useful measure to compare the Company's operations with those of its peers.

Contact Information

  • Touchstone Exploration Inc.
    Mr. Gregory Marr
    Chief Financial Officer
    (403) 992-8407

    Touchstone Exploration Inc.
    Mr. Paul Baay
    Chairman & Chief Executive Officer
    (403) 992-8407
    www.touchstoneexploration.com