Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

August 29, 2012 19:35 ET

Touchstone Exploration Inc. Announces Third Quarter Financial Results & Provides Operational Update

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2012) - Touchstone Exploration Inc. (TSX VENTURE:TAB) ("Touchstone" or the "Company") reported its operating and financial results for the third 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.

Financial highlights for the three month period ending June 30, 2012 are noted below:

  • Net earnings were $115, compared to a loss of $375 for the same period in 2011.
  • Sales volumes averaged 1,332 bbls/d, an increase from 452 bbls/d for the same period in 2011.
  • Funds flow from operations of $1,423, an increase from $214 for the same period in 2011.
  • Operating costs were reduced to $12.19 per bbl from $22.03 per bbl for the same period in 2011.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months ended June 30 Nine months ended June 30
($000's except share and per share amounts) 2012 2011 2012 2011
Financial
Petroleum revenue net of royalties $ 8,411 $ 2,380 $ 20,756 $ 4,440
Net earnings (loss) 115 (375) (1,550) (1,571)
Per share (basic and diluted) 0.00 (0.01) (0.01) (0.03)
Funds flow from operations1 1,423 214 3,547 (163)
Per share (basic)1 0.01 0.00 0.03 (0.00)
Operating netback1 ($/bbl) 57.20 35.79 52.90 35.42
Funds flow netback1 ($/bbl) 11.97 4.39 12.03 (2.23)
Capital expenditures 1,585 211 8,910 3,775
Assets acquired from acquisitions - - - 8,084
Total assets (end of period) 129,329 30,428
Total debt1 (end of period) 27,035 2,613
Shareholders' equity (end of period) 42,628 18,617
Weighted average shares outstanding
Basic and diluted 108,928,242 60,398,361 108,928,242 49,828,030
Outstanding shares (end of period)
Basic and diluted 108,928,242 60,409,911
Operational
Average daily production (bbls/day) 1,332 452 1,089 308
Average realized selling prices ($/bbl) 91.77 94.43 96.07 89.36
  1. The 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.

Financial

During the third quarter of 2012, drilling, recompletions and continued improvements in the Company's operations resulted in increased sales volumes and associated revenue. Revenue net of royalties for the period were $8,411 which represents an increase of 30% from $6,476 during the second quarter ending March 31, 2012 and an increase of 253% from $2,380 over the third quarter of 2011.

In the third quarter of 2012 the Company closed the sale of its 33.8% non-operated interest in the Moruga Block in South Central Trinidad for aggregate proceeds of $10,000. The Company also secured long-term financing to replace the $23,300 vendor take back note that was used to finance a portion of the Primera acquisition in 2011.

Higher sales volumes realized as a result of the Company's ongoing capital program resulted in improvements to both administrative and operating costs as compared to the second quarter of 2012 and the third quarter of 2011.

Production and Operations

Sales volumes for the quarter were 1,332 bbls/d, up from 1,012 bbls/d in the previous quarter, which represents the eighth straight quarter of production growth for the Company and a 32% increase over the previous quarter. In the third quarter the Company drilled one new well, performed eight recompletions and fifteen re-activations. On a year to date basis, the Company has drilled six new wells, recompleted twenty-five wells and re-activated twenty-two wells.

The majority of the production gains were realized on the WD-8 property, which has been a focus area for capital development over the second and third quarters of 2012. During the third quarter, production at WD-8 peaked at over 700 bbls/d, up from 450 bbls/d in the second quarter of 2012 and 130 bbls/d in July of 2010 when the Company acquired the property. Increased production was also achieved in Coora 1, New Dome, and San Francique through recompletions and optimization of existing wellbores.

Touchstone's total sales volumes for the month of July 2012 averaged 1,415 bbls/d.

Drilling

The Company continues to have success with its drilling program and has focused on drilling strategic locations with increased operational and capital efficiency. This has been accomplished by increasing in-house drilling expertise and taking advantage of existing wellbores to sidetrack locations rather than drilling wells from new surface locations.

This program has yielded a reduction in drilling costs of nearly 20% as compared to previous wells and has reduced both preparation and drilling time significantly. The Company's first sidetrack well drilled on WD-8 in July has produced over 4,500 bbls to date at an average rate of over 150 bbls/d. The Company's second sidetrack well came on production in mid-August at over 50 bbls/d.

In August 2012 the Company drilled and cased its first well on the Coora block which it acquired in February 2011. Drilled to a total depth of nearly 3,000 feet, this new vertical well encountered approximately 350 feet of net oil pay with 200 feet in the Upper Forest Formation and 150 feet in the Lower Forest Formation. This well is expected to be completed and on stream in September 2012 and a second location is 80% complete and will be drilled prior to year-end.

Drilling operations have now moved to the Sunty area near the Barrackpore acreage which was acquired in August 2011. Targeting the Herrera Sands Formation this well will be drilled to approximately 4,500 feet and will take approximately sixteen days to drill.

East Brighton Offshore

Final terms of the East Brighton lease have now been confirmed and a new license is awaiting ratification by Cabinet in Trinidad. The Company anticipates that final reading and approval of the new license will be completed by the end of September 2012.

Outlook

This quarter represented some new milestones on both the financial and operations fronts. With the drilling program now fully underway, additional production will be added prior to the end of the year. The Company continues to improve run times on new and existing wells as production characteristics are better understood.

FINANCIAL STATEMENTS

Below is selected financial statement information as at and for the three and nine months ended June 30, 2012 with 2011 comparative data. For full disclosure of Touchstone's unaudited condensed consolidated financial statements and the related Management, Discussion and Analysis, please visit Touchstone's website (www.touchstoneexploration.com) or SEDAR.

TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
(000's of US$) June 30,
2012
September 30,
2011
October 1,
2010
ASSETS
Current assets
Cash and cash equivalents $ 10,988 $ 7,118 $ 3,228
Accounts receivable 7,437 4,897 662
Inventory 132 165 -
Prepaid expenses and deposits 364 199 54
Promissory note receivable - - 185
Assets held for sale 830 10,000 -
19,751 22,379 4,129
Investment in associate 5,007 5,024 -
Exploration and evaluation assets 30,765 30,745 -
Property and equipment 61,515 56,765 5,139
Goodwill 12,291 12,291 2,312
$ 129,329 $ 127,204 $ 11,580
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 6,713 $ 6,547 $ 347
Income taxes payable 13,475 10,914 37
Current liability component of convertible debentures 3,888 - -
Current portion of note payable - 11,707 -
24,076 29,168 384
Liability component of convertible debentures 1,057 2,587 -
Embedded derivatives related to convertible debentures 126 1,371 -
Decommissioning obligations 7,588 6,998 -
Note payable - 11,650 -
Long-term debt 22,090 - -
Warrant component of long-term debt 551 - -
Deferred income taxes 31,213 31,948 2,241
86,701 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 1,877 1,154 183
Accumulated deficit (3,847) (2,297) (795)
42,628 43,482 8,955
$ 129,329 $ 127,204 $ 11,580
TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(unaudited)
(000's of US$) Three months ended June 30 Nine months ended June 30
2012 2011 2012 2011
Income
Petroleum $ 11,124 $ 3,887 $ 28,676 $ 7,521
Royalties (2,713) (1,507) (7,920) (3,081)
Share of loss of an associate (115) - (17) -
Interest and other 67 - 237 4
8,363 2,380 20,976 4,444
Expenses
Operating costs 1,478 907 4,967 1,459
General and administrative 2,169 487 4,008 2,099
Transaction costs - (6) 433 69
Depletion and depreciation 1,180 179 3,596 434
Share-based payments 223 286 572 724
Gain on unrealized embedded derivatives (1,063) - (1,025) -
Foreign exchange loss 6 (33) 343 (22)
Finance expenses 2,522 50 4,573 88
6,515 1,870 17,467 4,851
Earnings (loss) before income taxes 1,848 510 3,509 (407)
Income taxes
Current expense 2,691 809 5,793 1,000
Deferred recovery (958) 76 (734) 164
1,733 885 5,059 1,164
Net earnings (loss) and comprehensive earnings
(loss) for the period $ 115 $ (375) $ (1,550) $ (1,571)
Net earnings (loss) per share:
Basic and diluted $ 0.00 $ (0.01) $ (0.01) $ (0.03)
Weighted average number of common shares
outstanding (000's):
Basic and diluted 108,928 60,398 108,928 49,828
TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(000's of US$) Three months ended June 30 Nine months ended June 30
2012 2011 2012 2011
Cash provided by (used in):
Cash flows from operating activities:
Net earnings (loss) for the period $ 115 $ (375) $ (1,550) $ (1,571)
Items not involving cash from operations:
Depletion and depreciation 1,180 179 3,596 434
Share-based payments 223 286 572 724
Gain on unrealized embedded derivatives (1,063) - (1,025) -
Unrealized foreign exchange (gain)expense (77) - 74 -
Loss on future redemption of convertible
debenture 1,524 - 1,524 -
Accretion on liability component of
convertible debenture 194 - 540 -
Accretion on decommissioning obligations 181 48 544 86
Deferred income tax expense (958) 76 (734) 164
Share of loss of an associate 115 - 17 -
Abandonment costs (11) - (11) -
Change in non-cash working capital 263 (987) (3,142) (1,960)
1,686 (773) 405 (2,123)
Cash flows from financing activities:
Proceeds from issuance of share capital - - - 12,859
Share issuance costs - (1,347) (27) (2,387)
Repayment of note payable (23,300) - (23,300) -
Advances of long-term debt, net of fees 22,641 - 22,641 -
Issuance of convertible debenture - 5,987 - 5,987
Exercise of warrants - 38 - 38
(659) 4,678 (686) 16,497
Cash flows from investing activities:
Exploration and evaluation expenditures - (298) (20) (297)
Property and equipment expenditures (1,585) (211) (8,910) (3,775)
Acquisitions - - - (8,084)
Disposal of exploration and evaluation assets 10,000 - 10,000 -
Change in non-cash working capital (1,332) 6 3,081 120
7,083 (503) 4,151 (12,036)
Change in cash and cash equivalents 8,110 3,402 3,870 2,338
Cash and cash equivalents, beginning of period 2,878 2,164 7,118 3,228
Cash and cash equivalents, end of period $ 10,988 $ 5,566 $ 10,988 $ 5,566
Cash paid during the period for interest $ 815 $ - $ 1,953 $ -
Cash paid during the period for income taxes $ 73 $ 33 $ 3,693 $ 161

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's website at www.touchstoneexploration.com.

The companies in which Touchstone Exploration Inc. directly and indirectly owns investments or assets are separate entities. In this news release "Touchstone" or the "Company" are sometimes used for convenience where references are made to Touchstone Exploration Inc. and its subsidiaries in general.

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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

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