Touchstone Exploration Inc.
TSX VENTURE : TAB

Touchstone Exploration Inc.

January 28, 2014 09:00 ET

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

CALGARY, ALBERTA--(Marketwired - Jan. 28, 2014) - Touchstone Exploration Inc. (the "Company") (TSX VENTURE:TAB) is pleased to report its financial and reserves results for the year ended September 30, 2013. All values in this news release are rounded to thousands of United States dollars unless otherwise stated. Highlights for the fiscal year ended September 30, 2013 are noted below.

  • Achieved average annual oil production of 1,727 barrels per day, representing a 49 percent increase from the 1,159 barrels per day produced in the 2012 fiscal year.

  • Petroleum revenue net of royalties was $41,658,000, a 41 percent increase from the $29,567,000 realized in 2012.

  • Funds flow from operations increased $3,985,000 or 55 percent from $7,203,000 ($0.07 per share) earned in fiscal year 2012 to $11,188,000 ($0.08 per share) in fiscal year 2013.

  • The Company added 1,311,000 barrels of proved plus probable reserves for a total of 9,523,000 barrels net after royalties.

  • Ten new wells were drilled in the 2013 fiscal year yielding annual finding, development and acquisition costs of $11.63 per barrel on a total proven basis, resulting in a funds flow recycle ratio of 1.48. On a proved plus probable basis, 2013 finding, development and acquisition costs were $9.67 per barrel which resulted in a funds flow recycle ratio of 1.78.

Selected Annual Information

2013 2012
Petroleum revenue net of royalties $ 41,658,000 $ 29,567,000
Net (loss) earnings (766,000 ) 1,771,000
Per share (basic and diluted) (0.01 ) 0.02
Funds flow from operations1 11,188,000 7,203,000
Per share (basic and diluted)1 0.08 0.07
Operating netback1 ($/Bbl) 50.27 53.06
Funds flow netback1 ($/Bbl) 17.23 16.85
Working capital (end of year) (6,994,000 ) (2,313,000 )
Capital expenditures 9,353,000 14,786,000
Assets acquired from acquisitions 12,605,000 -
Total assets (end of year) 132,256,000 123,697,000
Total debt1 (end of year) 24,160,000 24,532,000
Shareholders' equity (end of year) 53,231,000 46,894,000
Average daily production (Bbls/day) 1,727 1,159
Average realized selling prices ($/Bbl) 93.01 95.16
1 See "Non-GAAP Measures"

The 2013 fiscal year was the Company's third full year of operations in the Republic of Trinidad and Tobago ("Trinidad"). During the year, the Company focused on improving its balance sheet, consolidating and integrating assets, and positioning itself for an aggressive exploitation and development program in 2014 and beyond.

The Company completed the acquisition of Primera Energy Resources Ltd. which further consolidated its direct and indirect holdings in Trinidad. The acquisition provided the Company with 100 percent working interest in the WD-4 block and a minority working interest in the Cory Moruga onshore exploration property. Since its December 1, 2012 integration, the WD-4 property has averaged 495 barrels of production per day.

In 2013 the Company drilled ten successful wells; seven produced during the fiscal year and three were placed on production in the first quarter of 2014. This organic growth served to further validate the Company's proof of concept, as six of the new wells were drilled on properties that had not been drilled previously. Production from these wells has exceeded the Company's expectations and as a result the Company has prioritized a number of new locations in its upcoming drilling schedule. The Company incurred $9,353,000 of capital expenditures and paid $18,087,000 in current income taxes during the fiscal year.

During 2013 the Company was successful in renewing two Farmout Agreements with the Petroleum Company of Trinidad and Tobago Limited ("Petrotrin") for the South Palo Seco and New Dome blocks. The South Palo Seco property has existing production and significant undeveloped acreage that is currently being evaluated for possible drilling in late 2014. The New Dome prospect has existing production that will not likely see activity until 2015. The Company also anticipates the formal signing of the East Brighton offshore exploration and production license to take place in late February.

2014 Outlook

Development operations in 2014 will initially focus on the WD-4 property. The Company's geoscience and engineering teams have identified several locations with excellent low-risk prospectivity based on comparatively low oil recovery to date. The WD-4 block is a slightly deeper basin compared to the majority of the Company's properties. Future development is expected to provide stable production from better consolidated sands. The WD-4 drilling program will commence in early February with two wells drilled from one surface location. The property currently has sufficient infrastructure in place to accommodate the forecasted production from the program.

The second phase of the program will focus on the Coora block. Four initial locations are planned to be drilled from two surface pads, with drilling expected to commence immediately following the WD-4 program. During the first quarter of fiscal 2014 the Company completed and optimized a number of new wells on the Coora 1 and Coora 2 blocks which have produced for several months with stable reservoir performance. The combined Coora acreage represent the Company's largest reserve base and will attract a large portion of future capital expenditures. As additional production is brought on stream the Company will optimize and expand Coora production facilities to accommodate the expected increase in volumes. The Company has installed an automated custody transfer unit which is expected to be approved and operational in early 2014.

The third phase of drilling operations in 2014 will be a shallow drilling program on the Company's Fyzabad, Barrackpore, and San Francique properties. The Company anticipates securing a second, smaller drilling rig in March to efficiently execute the program. These properties represent excellent technical and economic opportunities because of their shallow reservoirs and lower royalty rates in comparison to the Petrotrin partnered blocks.

In the second half of 2014 the Company anticipates a small exploration program on its non-operated Cory Moruga property. The Company has a 16.2 percent working interest and expects to participate in up to two new wells and the recompletion of Snowcap 1. The Snowcap 1 well was drilled in 2010 and in extended testing produced commercial quantities of oil on a flowing basis. The planned recompletion will see the well optimized and placed on production in 2014. The Company currently has no booked reserves for this property.

In conjunction with the drilling program the Company will continue its field optimization efforts, particularly with a focus on sand control within its WD-8 block. In an effort to provide consistent well run times, the Company has secured unique down-hole pumping systems designed to accommodate significant sand volumes without interruption. The Company will proceed with a pilot program on four wells which have shown high initial production rates but have yet to maintain stable production due to the periodic influx of sand. These tools have been successfully used in other international reservoirs which models indicate have similar characteristics to the WD-8 reservoir.

The Company will continue an equipment upgrade program designed to provide consistent and timely services to the large number of wells operated by the Company. The Company is currently adding a new mounted compressor to its coil tubing unit which will allow the Company's skid mounted unit to operate independently and serve as a coil tubing backup compressor as required. The Company has secured the use of both a service and drilling rig to assist in the execution of the 2014 program. This modern equipment is expected to increase operational efficiency and ultimately reduce long-term operating expenses. The upgraded equipment will also aid the Company in achieving its Safe to Work property certifications. The Safe to Work certification program represents the highest level of safety certification available in Trinidad.

The Company is awaiting results from the onshore bid round that was offered by the Trinidad government in 2013. The Company bid on the 44,700 acre Ortoire Block, which is located in close proximity to existing production and adjacent to Company leases in eastern Trinidad. A successful bid would provide a material amount of development and exploration opportunities. Results from the onshore bid round are expected to be disclosed in February.

Effective January 1, 2014, the Government of Trinidad and Tobago increased the deductibility of both exploration and development capital allowances from a 20 percent annual declining balance to 50 percent in year one, 30 percent in year two and 20 percent in year three. Based on its current capital forecast, the Company will benefit from the regime changes as the deduction acceleration will immediately reduce 2014 tax burdens and increase future funds flow for immediate capital reinvestment in Trinidad. As a result of the 2013 announcement the Company elected to suspend the drilling program and recommence in the Company's fiscal year second quarter.

This drilling suspension resulted in flat production for the first quarter, as the Company produced approximately 1,685 barrels per day. Current January field estimated average production is approximately 1,730 barrels per day. Subsequent to year-end the Company has reduced debt by approximately $1,400. The Company continues to evaluate its land holdings to maximize value and where prudent, make strategic acquisitions and divest non-core assets. 2014 will be an active year as the Company commences an aggressive drilling program, targeting 2,000 to 2,200 barrels per day of average production for the 2014 fiscal year.

Annual Oil and Gas Reserves Report

The Company is pleased to announce the results of the independent year-end reserve evaluation (the "Reserves Report") with respect to the Company's crude oil reserves in Trinidad as of September 30, 2013. The Reserves Report was 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 Reserves Report has an effective date of September 30, 2013 and is dated January 20, 2014.

The following disclosure in this news release summarizes certain information contained in the Reserves 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, 2013 available at the the Company's website (www.touchstoneexploration.com) and on the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com).

Highlights of the Reserves Report are as follows:

  • Total proved reserves (net after royalties) increased 25.4 percent to 5.73 million barrels (100 percent oil).

  • Total proved plus probable reserves (net after royalties) increased 16.0 percent to 9.52 million barrels (100 percent oil).

  • Total proved reserves value before tax (10 percent discount rate) increased 25.5% to $205.7 million.

  • Total proved plus probable reserves value before tax (10 percent discount rate) increased 19.5% to $345.4 million.

  • Net present value before tax (10 percent discount rate) decreased 1.7% to $1.48 per basic share on a on a total proved basis.

  • Net present value before tax (10 percent discount rate) decreased 6.3% to $2.49 per basic share on a total proved plus probable basis.

The Reserve Report was based on GLJ forecast prices and costs at September 30, 2013. 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.

The following table provides a summary of information based upon the Reserves Report:

SUMMARY OF RESERVES AS OF SEPTEMBER 30, 2013
Marketable Reserves Producing Developed Nonproducing Undeveloped Proved Probable Proved plus probable
Light/Medium Oil (Mbbl)
Total Company Interest 5,230 289 2,809 8,327 5,576 13,903
Working Interest 5,230 289 2,809 8,327 5,576 13,903
Net After Royalty 3,481 198 2,050 5,729 3,794 9,523
Oil Equivalent (Mbbl)
Total Company Interest 5,230 289 2,809 8,327 5,576 13,903
Working Interest 5,230 289 2,809 8,327 5,576 13,903
Net After Royalty 3,481 198 2,050 5,729 3,794 9,523

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.

Financial Statements

Below is selected financial statement information as at and for the year ended September 30, 2013 with 2012 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, 2013, available at the Company's website (www.touchstoneexploration.com) or on SEDAR.

Touchstone Exploration Inc.
Consolidated Statements of Financial Position
(amounts in 000's of U.S. dollars)
As at September 30 2013 2012
ASSETS
Current assets
Cash $ 7,110 $ 7,409
Accounts receivable 7,532 7,330
Inventory 199 172
Prepaid expenses and deposits 370 452
Assets held for sale - 830
15,211 16,193
Investment in associate - 5,070
Exploration and evaluation assets 30,447 30,447
Property and equipment 75,084 63,833
Goodwill 11,514 8,154
$ 132,256 $ 123,697
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 6,517 $ 7,050
Income taxes payable 10,408 11,342
Current portion of long-term debt 5,280 114
22,205 18,506
Liability component of convertible debentures 1,522 1,176
Embedded derivatives related to convertible debentures 17 112
Decommissioning obligations 2,832 4,619
Long-term debt 17,358 23,242
Warrant component of long-term debt 530 574
Deferred income taxes 34,561 28,574
79,025 76,803
Shareholders' equity
Share capital 47,264 40,764
Contributed surplus 6,547 5,944
Accumulated (deficit) earnings (580 ) 186
53,231 46,894
$ 132,256 $ 123,697
Touchstone Exploration Inc.
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
(amounts in 000's of U.S. dollars)
Year ended September 30
2013 2012
Income
Petroleum $ 58,625 $ 40,350
Royalties (16,967 ) (10,783 )
Share of earnings of an associate - 46
Interest and other 744 255
42,402 29,868
Expenses
Operating costs 9,969 7,068
General and administrative 6,742 6,539
Transaction costs 552 433
Depletion, depreciation and impairment 8,973 5,190
Share-based payments 425 722
Gain on unrealized embedded derivatives (103 ) (1,025 )
Foreign exchange (gain) loss (683 ) 1,168
Finance expenses 4,531 5,530
30,406 25,625
Earnings before income taxes 11,996 4,243
Income taxes
Current expense 10,127 5,846
Deferred expense (recovery) 2,635 (3,374 )
12,762 2,472
Net (loss) earnings and comprehensive (loss) earnings for the year $ (766 ) $ 1,771
Net (loss) earnings per share:
Basic and diluted $ (0.01 ) $ 0.02
Weighted average number of common shares outstanding (000's):
Basic and diluted 133,938 108,928
Touchstone Exploration Inc.
Consolidated Statements of Cash Flows
(amounts in 000's of U.S. dollars)
Year ended September 30
2013 2012
Cash provided by (used in):
Cash flows from operating activities:
Net (loss) earnings for the year $ (766 ) $ 1,771
Items not involving cash from operations:
Depletion, depreciation and impairment 8,973 5,190
Share-based payments 425 722
Gain on unrealized embedded derivatives (103 ) (1,025 )
Unrealized foreign exchange (gain) loss (1,109 ) 982
Loss on redemption of convertible debentures - 1,564
Accretion on long-debt 407 77
Accretion on convertible debentures 399 624
Accretion on decommissioning obligations 327 729
Deferred income tax expense (recovery) 2,635 (3,374 )
Share of earnings of an associate - (46 )
Abandonment costs - (11 )
Change in non-cash working capital (4,062 ) (59 )
7,126 7,144
Cash flows from financing activities:
Share issuance costs - (27 )
Repayment of convertible debentures - (3,960 )
Repayment of long-term debt (109 ) (23,300 )
Advances of long-term debt, net of fees - 23,012
(109 ) (4,275 )
Cash flows from investing activities:
Property and equipment expenditures (9,353 ) (14,716 )
Exploration and evaluation asset expenditures - (70 )
Disposal of property and equipment 830 -
Disposal of exploration and evaluation assets - 10,000
Acquisitions 2,553 -
Change in non-cash working capital (1,346 ) 2,208
(7,316 ) (2,578 )
Change in cash (299 ) 291
Cash, beginning of year 7,409 7,118
Cash, end of year $ 7,110 $ 7,409
Cash paid during the year for interest 2,411 2,487
Cash paid during the year for income taxes 18,087 4,851

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. 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 International Financial Reporting Standards ("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 basic and dilutive common shares outstanding during the period.

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. Paul R. Baay
    Chairman & Chief Executive Officer
    (403) 992-8407

    Touchstone Exploration Inc.
    Mr. Scott Budau
    Chief Financial Officer
    (403) 992-8407
    www.touchstoneexploration.com