Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

January 28, 2013 09:00 ET

Touchstone Exploration Inc. Announces Year-End Financial & Reserve Information

CALGARY, ALBERTA--(Marketwire - Jan. 28, 2013) - Touchstone Exploration Inc. (TSX VENTURE:TAB) (the "Company") reported its financial and reserves results for the year ended September 30, 2012. The Company is currently reporting under International Financial Reporting Standards ("IFRS") and all values in this news release are in thousands of United States dollars unless otherwise stated. Financial highlights for year ended September 30, 2012 are noted below:

  • Average annual production for 2012 was 1,159 barrels of oil per day, a 175 percent increase from the 421 barrels per day produced in 2011.
  • Petroleum revenue net of royalties was $29,567, a 219 percent increase from the $9,283 recognized in 2011.
  • Funds flow from operations increased $8,795 from negative $1,592 (($0.01) per share) in 2011 to $7,203 ($0.07 per share) in 2012.
  • The Company added 1,071,000 barrels of proved plus probable reserves for a total of 8,212,000 barrels net of royalties.
  • Ten new wells were drilled and twenty-three recompletions were performed in the 2012 fiscal year yielding annual finding and development costs of $4.58 per barrel on a total proven basis, resulting in a recycle ratio of 3.68.
  • As at September 30, 2012, the Company's after tax proved and probable net asset value was $106,115(1) or $0.97 per share (10 percent discounted).
Selected Annual Information
($000's unless otherwise stated) 2012 2011 20103
Petroleum revenue net of royalties $ 29,567 $ 9,283 $ 485
Net earnings (loss) 1,771 (790 ) (888 )
Per share (basic and diluted) 0.02 (0.01 ) (0.04 )
Funds flow from operations2 7,203 (1,592 ) (745 )
Per share (basic and diluted)2 0.07 (0.00 ) (0.04 )
Operating netback2 ($/Bbl) 53.06 35.91 23.56
Funds flow netback2 ($/Bbl) 16.85 (9.41 ) (56.63 )
Capital expenditures 14,786 5,091 608
Assets acquired from acquisitions - 32,383 1,921
Total assets (end of year) 123,697 123,692 11,459
Total debt2 (end of year) 24,532 25,944 -
Shareholders' equity (end of year) 46,894 44,194 8,884
Average daily production (Bbls/day) 1,159 421 143
Average realized selling prices ($/Bbl) 95.16 91.33 68.10
1 Net asset value is calculated as ten percent discounted proved plus probable reserve before tax cash flows plus evaluation assets less the principal values of debt.
2 See "Non-GAAP Measures"
3 All 2010 amounts are reported under Canadian GAAP and are not adjusted for IFRS.

The fiscal year ending September 2012 was the Company's second full year of operations in Trinidad. During the year, the Company focused on improving its balance sheet, consolidating and integrating assets and generally positioning the organization for an aggressive exploitation and development program moving forward into 2013 and beyond.

Through a series of commercial transactions, the Company significantly strengthened its balance sheet from a capital management perspective. In the third quarter of 2012 the Company closed a non-core asset divestiture for aggregate proceeds of $10 million. Furthermore, the Company's two year note payable, which was undertaken in the previous acquisition of the Primera Group of Companies, was refinanced with a 9.25 percent medium term loan. This note conversion is significant as it removed the two year principal repayment schedule which existed under the original debt and enables the Company to make interest-only payments through October 2013.

The Company completed the purchase and extinguishment of $4 million (CAD) of the $6 million (CAD) principal amount of the Company's convertible debenture units for the principal amount; 2 million share purchase warrants attached to these convertible debentures were surrendered also for cancellation.

Production and Operations

The fourth quarter ended September 30, 2012 represented the Company's eighth consecutive quarter of production growth and its fourth consecutive quarter of improved positive funds flow from operations. Fourth quarter production averaged 1,365 barrels per day, representing a 4 percent increase from the third quarter of 2012 and an 80 percent increase from the corresponding 2011 quarter.

During 2012 the Company drilled ten wells, eight in WD-8, one in Coora and one in Sunty, with a 100 percent success rate. The Company recompleted twenty-three wellbores in several properties including WD-8, Coora, Fyzabad and San Francique. Average capital efficiency for the 2012 new drills was approximately $15,000(1) per barrel per day and approximately $4,500 per barrel per day for the 2012 recompletion program. 2012 average drilling expenses were reduced by approximately 20 percent as compared to 2011. The Company expects these numbers will improve as the Company continues to develop and expand upon the proof-of-concept exploitation program developed as a means of reducing risk and optimizing outcomes.

The Company has continued to expand and improve upon its existing production infrastructure with the fabrication and commissioning of a Lease Automatic Custody Transfer ("LACT") unit at WD-8 and a second LACT unit fabricated and installed at Coora (commissioned in 2013). With increased volume and activity growth there has been a need to expand facilities at WD-8 and to optimize the existing well service equipment fleet.

An on-going challenge that the Company continues to remediate is reservoir sand production. Sand influx into producing wellbores is the single largest challenge to further improving production run-times and wellbore clean-out frequency. Towards that, in the spring of 2012 the Company purchased and imported a truck-mounted coiled-tubing unit for work-overs and clean-outs. The Company engaged a Canadian consulting firm to help operationalize the equipment and train local staff on sand management and remediation techniques. These undertakings, along with several new completion techniques, production practices and clean-out capabilities that are being introduced into the 2013 program, are expected to continue to build upon the Company's capabilities and efficiencies.

During the first quarter of 2013, the Company announced the successful closing of its fifth acquisition in two years in which the Company acquired all the outstanding common shares of Primera Energy Resources Ltd. ("PERL") not otherwise previously owned by the Company in exchange for the issuance of 30,028,275 Company common shares. The Company had acquired its initial 41.6 percent interest in PERL through the acquisition of the Primera Group of Companies in August 2011. This subsequent acquisition serves to consolidate and create synergies amongst the Company's respective operations. The transaction was approved by PERL shareholders and closed on November 30, 2012. Upon closing the PERL assets and operating staff were immediately integrated into Company operations. This acquisition brings the Company's consolidated land position to 24,806 working interest acres comprised of eleven onshore producing properties, eight exploration blocks and two offshore exploration blocks. The Company has a current drilling inventory of approximately one hundred and thirty locations.

Health, Safety and Environment

As part of the Company's corporate responsibility within its host community, the Company is committed to the provision of effective Health, Safety and Environment ("HSE") practices, policies and systems. Over the past year, the Company has completed an extensive review and upgrade of its HSE Management Systems and has implemented several new policies and procedures aimed at ensuring that the Company operates safely, compliantly and with due regard for the welfare of the community and the environment.

In 2012, the Company began work towards being Safe to Work ("STOW") certified. STOW is a national program for management system certification in Trinidad and once in place, is a recognized quality assurance certification in all aspects of HSE. The Company has put several initiatives in place towards increasing safety and improving operational integrity. Examples of these initiatives include facility upgrades in Coora and WD-8 to improve security, reduction of product handling and/or removal of potential release sources, implementation of Company-wide air quality monitoring, emergency response planning exercises and the provision of various safety and compliance training programs for staff and contractors. The Company's operating subsidiaries received partial STOW certification in 2012 and expect to be fully compliant with this standard by the end of 2013.

The Company presently employs two full-time HSE professionals as well as various expertise-specific consultants as required. In addition, the Company maintains several regular inspection and review processes directed towards all aspects of HSE and has a reporting structure in place to ensure management is informed and engaged in all aspects of HSE compliance and stewardship.

In 2012 the Company had no major HSE incidents that resulted in an enforcement action on its operations.

Human Resources

The Company currently has one hundred and ten employees, of which one hundred and one are based in Trinidad and nine are based in Calgary. The Company recognizes that corporate social responsibility is of ultimate importance. With ongoing commitment to ethical business practices, remaining good stewards of the environment and contributions to local economic development, the Company endeavours to improve the quality of life of its workforce as well as the interests of the local community and society at large. This commitment and understanding is not only driven from senior management but it has been embraced by all employees.

The Company's employee recognition program is now in its second year. This program allows a selected employee to make a donation to a charity of their choice in addition to receiving an honorarium from the Company. In 2012 nine employees were rewarded for their hard work and dedication and in turn, nine local organizations received a donation from the Company. Through the considered choices of the Company's best employees, this program is an example of the Company's commitment to the local communities in which it operates.

The Company partnered with the Energy Chamber of Trinidad and Tobago, the Heroes Foundation and members/associates of the Chamber for the 2012 Ocean Conservancy's International Coastal Cleanup in Trinidad. Approximately twenty-five of the Company's employees helped collect an estimated 1,800 kilograms of refuse over nearly half a kilometre at Quinam Beach.

In 2012 the Company continued its annual Christmas hamper program with employee volunteers presenting hampers to underprivileged students selected from eight local schools in the Fyzabad area.

Outlook

The Company's 2013 capital program commenced in the first quarter of 2013 with two successful wells drilled on its freehold Fyzabad block, one successful well drilled on the Coora 1 block and one successful well drilled on the WD-4 block. In addition, seven recompletions have been performed to date. The balance of the fiscal year 2013 capital program contemplates fourteen new wells and approximately thirty-four recompletions with a 2013 exit production target between 2,800 and 3,100 barrels per day. It is currently anticipated that the drilling program will recommence in March 2013.

Going forward, the Company will continue to evaluate its land holdings to maximize value and where prudent, make strategic acquisitions and divest non-core assets as appropriate.

The accomplishments of 2012 have served to improve operational efficiency and enable the Company to continue to grow and optimize operations as the Company moves into its third year of activity in Trinidad. In the coming year, the Company will continue to focus on production growth and cash flow optimization.

Financial Statements

Below is selected financial statement information as at and for the year ended September 30, 2012 with 2011 comparative data which should be read in conjunction with the Company's audited consolidated financial statements and the related Management, Discussion and Analysis for the year ended September 30, 2012, available at the the Company's website (www.touchstoneexploration.com) or on the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com).

Touchstone Exploration Inc.
Consolidated Statements of Financial Position
(000's of US$) September 30, 2012 September 30, 2011 October 1, 2010
ASSETS
Current assets
Cash and cash equivalents $ 7,409 $ 7,118 $ 3,228
Accounts receivable 7,330 4,825 662
Inventory 172 165 -
Prepaid expenses and deposits 452 184 54
Promissory note receivable - - 185
Assets held for sale 830 10,000 -
16,193 22,292 4,129
Investment in associate 5,070 5,024 -
Exploration and evaluation assets 30,447 30,745 -
Property and equipment 63,833 57,477 5,139
Goodwill 8,154 8,154 2,312
$ 123,697 $ 123,692 $ 11,580
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 7,050 $ 3,423 $ 347
Income taxes payable 11,342 9,814 37
Current portion of note payable - 11,707 -
Current portion of long-term debt 114 - -
18,506 24,944 384
Liability component of convertible debentures 1,176 2,587 -
Embedded derivatives related to convertible debentures 112 1,371 -
Decommissioning obligations 4,619 6,998 -
Note payable - 11,650 -
Long-term debt 23,242 - -
Warrant component of long-term debt 574 - -
Deferred income taxes 28,574 31,948 2,241
76,803 79,498 2,625
Shareholders' equity
Share capital 40,764 15,844 9,567
Warrants - 3,834 -
Share subscriptions - 24,947 -
Contributed surplus 5,944 1,154 183
Accumulated earnings (deficit) 186 (1,585 ) (795 )
46,894 44,194 8,955
$ 123,697 $ 123,692 $ 11,580
Touchstone Exploration Inc.
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
Year ended September 30
2012 2011
(000's of US$)
Income
Petroleum $ 40,350 $ 14,050
Royalties (10,783 ) (4,767 )
Share of loss of an associate 46 201
Interest and other 255 107
29,868 9,591
Expenses
Operating costs 7,068 3,758
General and administrative 6,539 2,984
Transaction costs 433 1,236
Depletion and depreciation 5,190 1,122
Share-based payments 722 771
Gain on unrealized embedded derivatives (1,025 ) (1,889 )
Foreign exchange loss (gain) 1,168 (56 )
Finance expenses 5,525 707
25,620 8,633
Earnings before income taxes 4,248 958
Income taxes
Current expense 5,851 2,386
Deferred recovery (3,374 ) (638 )
2,477 1,748
Net earnings (loss) and comprehensive earnings (loss) for the year $ 1,771 $ (790 )
Net earnings (loss) per share:
Basic and diluted $ 0.02 $ (0.01 )
Weighted average number of common shares outstanding (000's):
Basic and diluted 108,928 57,820
Touchstone Exploration Inc.
Consolidated Statements of Cash Flows
Year ended September 30
2012 2011
(000's of US$)
Cash provided by (used in):
Cash flows from operating activities:
Net earnings (loss) for the year $ 1,771 $ (790 )
Items not involving cash from operations:
Depletion and depreciation 5,190 1,122
Share-based payments 722 771
Gain on unrealized embedded derivatives (1,025 ) (1,889 )
Unrealized foreign exchange expense (gain) 982 (308 )
Loss on future redemption of convertible debenture 1,564 -
Accretion on long-debt 77 -
Accretion on liability component of convertible debenture 624 151
Accretion on decommissioning obligations 729 190
Deferred income tax recovery (3,374 ) (638 )
Share of earnings of an associate (46 ) (201 )
Abandonment costs (11 ) -
Change in non-cash working capital (59 ) 1,685
7,144 93
Cash flows from financing activities:
Proceeds from issuance of share capital - 12,859
Share issuance costs (27 ) (2,770 )
Share subscriptions received in advance - 24,947
Repayment of convertible debentures (3,960 ) -
Repayment of note payable (23,300 ) -
Advances of long-term debt, net of fees 23,012 -
Issuance of convertible debenture - 5,987
Exercise of warrants - 38
(4,475 ) 41,061
Cash flows from investing activities:
Exploration and evaluation expenditures (70 ) (297 )
Property and equipment expenditures (14,716 ) (4,794 )
Acquisitions - (32,383 )
Disposal of exploration and evaluation assets 10,000 -
Change in non-cash working capital 2,208 210
(2,578 ) (37,264 )
Change in cash and cash equivalents 291 3,890
Cash and cash equivalents, beginning of year 7,118 3,228
Cash and cash equivalents, end of year $ 7,409 $ 7,118
Cash paid during the year for interest $ 2,487 $ 161
Cash paid during the year for income taxes $ 4,851 $ 1,218

September 30, 2012 Reserves

The Company is pleased to announce the results of the independent year-end reserve evaluation (the "GLJ Report") with respect to the Company's crude oil reserves in Trinidad as of the September 30, 2012 fiscal year-end prepared by GLJ Petroleum Consultants Ltd. ("GLJ") in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). The GLJ Report has an effective date of September 30, 2012 and is dated January 18, 2013. The GLJ Report does not include any reserve assignments to the Company for the WD-4 asset acquired through the PERL acquisition. This report will be completed at a future date.

The following disclosure in this news release summarize certain information contained in the GLJ Report but represents only a portion of the disclosure required under NI 51-101. Full disclosure will be contained in the Company's annual prescribed disclosure and reports relating to reserves data and other oil and gas information required pursuant to NI 51-101 for the year ended September 30, 2012, which will include complete disclosure of the Company's oil and gas reserves and other oil and gas information in accordance with NI 51-101, available at the the Company's website (www.touchstoneexploration.com) or on SEDAR.

2012 Highlights of the GLJ Report

  • Total proved reserves (net after royalties) increased 13.4 percent to 4.57 million barrels (100 percent oil).
  • Total proved plus probable reserves (net after royalties) increased 8.6 percent to 8.21 million barrels (100 percent oil).
  • Reserves value was $164.0 million (10 percent discount rate) before tax for total proved reserves.
  • Reserves value was $288.9 million (10 percent discount rate) before tax for total proved plus probable reserves.
  • Net present value before tax (10 percent discount rate) was $1.50 per share on a on a total proved basis.
  • Net present value before tax (10 percent discount rate) was $2.65 per share on a total proved plus probable basis.

The reserve evaluation was based on GLJ forecast prices and costs at September 30, 2012. Changes in future price forecasts resulted in a slight decrease in the net present value as compared to 2011 but increased reserve bookings tempered the net effect of those price changes overall. All evaluations of future net cash flows are prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures and abandonment costs for wells to which reserves have been assigned. There is no assurance that the forecast prices and costs assumptions will be attained and variances could be material.

Reserves Summary
The following table provides a summary of information based upon the GLJ Report:
Proved
Producing
Proved
Developed
Non-producing
Proved
Undeveloped
Total
Proved
Total
Probable
Total
Proved plus
Probable
Marketable Reserves
Light/Medium Oil (Mbbl)
Total Company Interest 4,022 479 2,089 6,590 4,952 11,543
Working Interest 4,022 479 2,089 6,590 4,952 11,543
Net After Royalty 2,683 286 1,600 4,569 3,644 8,212
Oil Equivalent (Mbbl)
Total Company Interest 4,022 479 2,089 6,590 4,952 11,543
Working Interest 4,022 479 2,089 6,590 4,952 11,543
Net After Royalty 2,683 286 1,600 4,569 3,644 8,212

The recovery and reserve estimations of the Company's crude oil reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may be greater than or less than the estimates provided herein.

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 TSX Venture Exchange under the symbol "TAB". Please see the latest corporate presentation on the Company'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. Statements relating to "reserves" and "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future. Such statements represent the Company's internal projections, estimates or beliefs concerning future growth, results of operations based on information currently available to the Company based on assumptions that are subject to change and are beyond the Company's control, such as: production rates and production decline rates, the magnitude of and ability to recover oil and gas reserves, plans for and results of drilling activity, well abandonment costs and salvage value, the ability to secure necessary personnel, equipment and services, environmental matters, future commodity prices, changes to prevailing regulatory, royalty, tax and environmental laws and regulations, the impact of competition, future capital and other expenditures (including the amount, nature and sources of funding thereof), future financing sources, 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 and assumptions reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations and assumptions 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 drilling 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, and access to third party gathering and processing facilities, transportation and other third party related operation risks. The Company is exposed to risks related to recent acquisitions including unforeseen difficulties in integrating acquired companies, properties, personnel and infrastructure into the Company's operations; the outcome of litigation brought against the Company or acquired companies or other disputes involving the Company or any acquired companies; or the failure generally to realize the anticipated benefits of such acquisitions. 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 laws, royalties and incentive programs relating to the oil and gas industry, fluctuations in natural gas and crude oil 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 or the termination of licence, lease operating or farm-in rights related to the Company's oil and gas interests in Trinidad and Tobago.

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, documents and disclosures on file with Canadian securities regulatory authorities and may be accessed on SEDAR.

Non-GAAP Measures

This press release contains terms 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 funds flow netback. These terms do not have a standardized meaning under IFRS and may not be comparable to similar measures presented 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 year.

The Company uses funds flow netbacks as a key performance indicator of results. Funds flow netbacks do not have a standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures by other companies. 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 non-cash items 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.

The Company also uses operating netbacks as a key performance indicator of field results. Operating netbacks do not have a standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures by other companies. 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.

Total debt is calculated by summing the Company's current and long-term portions of interest bearing instruments (not including derivative instruments). The Company uses this information to assess its true debt position and manage capital risk. The Company's determination of total debt may not be comparable to that reported by other companies.

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. Scott Budau
    Chief Financial Officer
    (403) 992-8407

    Touchstone Exploration Inc.
    Mr. Ron Bryant
    President & Chief Operating Officer
    (403) 992-8407
    www.touchstoneexploration.com