Touchstone Exploration Inc. — Earnings Release 2023

Aug 11, 2023

National Storage Mechanism | Additional information

RNS Number : 0068J

Touchstone Exploration Inc.

11 August 2023

SECOND QUARTER 2023 FINANCIAL AND OPERATING RESULTS

CALGARY, ALBERTA (August 11, 2023) - Touchstone Exploration Inc. ("Touchstone", "we", "our", "us" or the "Company") (TSX, LSE: TXP) reports its operating and financial results for the three and six months ended June 30, 2023.

Selected information is outlined below and should be read in conjunction with our June 30, 2023 unaudited interim condensed consolidated financial statements and related Management's discussion and analysis, both of which will be available under our profile on SEDAR (www.sedar.com) and on our website (www.touchstoneexploration.com). Unless otherwise stated, all financial amounts herein are rounded to thousands of United States dollars.

Paul Baay, President and Chief Executive Officer, commented:

"I am pleased to provide an update on our financial and operational results for the second quarter of the 2023 financial year. The results come as we continue to focus our efforts on the commissioning of the Cascadura facility and completing production testing at Royston-1X. We look forward to providing shareholders with further updates in the near term."

Second Quarter 2023 Financial and Operational Highlights

·      Achieved quarterly production average volumes of 1,827 boe/d, representing a 29 percent increase relative to the 1,420 boe/d produced in the prior year equivalent quarter.

·      Natural gas production from our Coho-1 well averaged net volumes of 4.2 MMcf/d (703 boe/d) in the quarter and contributed $811,000 of net natural gas sales at an average realized price of $2.11/Mcf.

·      Realized petroleum and natural gas sales of $7,181,000 compared to $12,596,000 in the 2022 comparative quarter, as $811,000 in net natural gas sales were offset by decreased crude oil sales of $6,226,000, reflecting a 36 percent decline in realized crude oil pricing and a 21 percent decrease in crude oil production.

·      Generated an operating netback of $2,826,000, representing a 51 percent decrease from the 2022 equivalent quarter primarily attributed to the 43 percent decline in petroleum and natural gas sales.

·      Reported funds flow from operations of $6,000 in the quarter compared to $803,000 in the preceding quarter and $1,150,000 in the prior year equivalent quarter.

·      Recognized a net loss of $71,000 ($0.00 per basic share) and comprehensive income of $136,000 in the quarter compared to a net loss of $262,000 ($0.00 per basic share) and a comprehensive loss of $529,000 reported in the same period of 2022.

·      $5,135,000 in quarterly capital investments primarily focused on expenditures related to the construction of the Cascadura natural gas and liquids facility and two Royston-1X production tests.

·      Amended our Trinidad based loan agreement in May 2023, allowing for an additional $7 million revolving loan component that was fully drawn in June 2023 to provide liquidity while we complete construction of the Cascadura facility.

·      Exited the quarter with a cash balance of $10,138,000, a bank debt principal balance of $31,000,000 and a net debt position of $28,913,000.

Financial and Operating Results Summary

	Three months ended June 30,		% change	Six months ended June 30,		% change
2023	2022	2023	2022
---	---	---	---	---	---	---
---	---	---	---	---	---	---
Operational
Average daily production
Crude oil(1) (bbls/d)	1,124	1,420	(21)	1,204	1,408	(14)
Natural gas(1) (Mcf/d)	4,215	-	n/a	4,667	-	n/a
Average daily production (boe/d)(2)	1,827	1,420	29	1,982	1,408	41
Average realized prices(3)
Crude oil(1) ($/bbl)	62.26	97.48	(36)	63.64	90.61	(30)
Natural gas(1) ($/Mcf)	2.11	-	n/a	2.12	-	n/a
Realized commodity price ($/boe)(2)	43.19	97.48	(56)	43.64	90.61	(52)
Production mix (% of production)
Crude oil(1)	62	100		61	100
Natural gas(1)	38	-		39	-
Operating netback ($/boe)(2)
Realized commodity price(3)	43.19	97.48	(56)	43.64	90.61	(52)
Royalties(3)	(12.94)	(34.97)	(63)	(12.98)	(31.80)	(59)
Operating expenses(3)	(13.25)	(17.52)	(24)	(12.61)	(17.35)	(27)
Operating netback(3)	17.00	44.99	(62)	18.05	41.46	(56)
Financial
($000's except per share amounts)
Petroleum and natural gas sales	7,181	12,596	(43)	15,657	23,092	(32)
Cash from operating activities	2,975	3,533	(16)	3,888	3,883	-
Funds flow from operations	6	1,150	(99)	809	2,593	(69)
Net loss	(71)	(262)	(73)	(350)	(498)	(30)
Per share - basic and diluted	(0.00)	(0.00)	-	(0.00)	(0.00)	-
Exploration capital expenditures	4,795	2,932	64	13,545	4,806	182
Development capital expenditures	340	436	(22)	609	1,116	(45)
Capital expenditures(3)	5,135	3,368	52	14,154	5,922	139
Working capital deficit (surplus)(3)				10,913	(346)	n/a
Principal long-term bank debt				18,000	24,000	(25)
Net debt(3) - end of period				28,913	23,654	22
Share Information (000's)
Weighted average shares outstanding - basic and diluted	233,144	212,204	10	233,091	211,517	10
Outstanding shares - end of period				233,428	212,275	10

Notes:

(1)    In the table above and elsewhere in this announcement, references to "crude oil" refer to light and medium crude oil and heavy crude oil product types combined and references to "natural gas" refer to conventional natural gas, all as defined in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Refer to "Advisories - Product Type Disclosures" for further information.

(2)    In the table above and elsewhere in this announcement, references to "boe" mean barrels of oil equivalent that are calculated using the energy equivalent conversion method. Refer to "Advisories - Oil and Natural Gas Measures" for further information.

(3)    Non-GAAP financial measure. See "Advisories - Non-GAAP Financial Measures" for further information.

Touchstone Exploration Inc.

Touchstone Exploration Inc. is a Calgary, Alberta based company 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. Touchstone is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Stock Exchange and the AIM market of the London Stock Exchange under the symbol "TXP".

For further information about Touchstone, please visit our website at www.touchstoneexploration.com or contact:

Touchstone Exploration Inc.

Paul Baay, President and Chief Executive Officer                       Tel: +1 (403) 750-4487

Scott Budau, Chief Financial Officer

James Shipka, Chief Operating Officer

Shore Capital (Nominated Advisor and Joint Broker)

Daniel Bush / Toby Gibbs / Iain Sexton                                      Tel: +44 (0) 207 408 4090

Canaccord Genuity (Joint Broker) 

Adam James / Gordon Hamilton                                                Tel: +44 (0) 207 523 8000

FTI Consulting (Financial PR)

Nick Hennis / Ben Brewerton                                                     Tel: +44 (0) 203 727 1000

Email: [email protected]

Advisories

Forward-Looking Statements

Certain information provided in this announcement may constitute forward-looking statements and information (collectively, "forward-looking statements") within the meaning of applicable securities laws. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to assumptions, risks and uncertainties, many of which are beyond the control of the Company. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or are events or conditions that "will", "would", "may", "could" or "should" occur or be achieved. The forward-looking statements contained in this announcement speak only as of the date thereof and are expressly qualified by this cautionary statement.

Specifically, this announcement includes, but is not limited to, forward-looking statements relating to the Company's development and exploration plans and strategies and Touchstone's current and future financial position including the sufficiency of resources to fund future capital expenditures and maintain financial liquidity. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Certain of these risks are set out in more detail in the Company's 2022 Annual Information Form dated March 23, 2023 which is available under the Company's profile on SEDAR (www.sedar.com) and on the Company's website (www.touchstoneexploration.com). The forward-looking statements contained in this announcement are made as of the date hereof, and except as may be required by applicable securities laws, the Company assumes no obligation or intent to update publicly or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

This announcement may reference various non-GAAP financial measures, non-GAAP ratios, capital management measures and supplementary financial measures as such terms are defined in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. Such measures are not recognized measures under GAAP and do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or "GAAP") and therefore may not be comparable to similar financial measures disclosed by other issuers. Readers are cautioned that the non-GAAP financial measures referred to herein should not be construed as alternatives to, or more meaningful than, measures prescribed by IFRS, and they are not meant to enhance the Company's reported financial performance or position. These are complementary measures that are commonly used in the oil and natural gas industry and by the Company to provide shareholders and potential investors with additional information regarding the Company's performance. Below is a description of the non-GAAP financial measures, non-GAAP ratios, capital management measures and supplementary financial measures disclosed in this announcement.

Funds flow from operations

Funds flow from operations is included in the Company's consolidated statements of cash flows. Touchstone considers funds flow from operations to be a key measure of operating performance as it demonstrates the Company's ability to generate the funds necessary to finance capital expenditures and repay debt. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds flow from operations provides a useful measure of the Company's ability to generate cash that is not subject to short-term movements in non-cash operating working capital.

Operating netback

Touchstone uses operating netback as a key performance indicator of field results. The Company considers operating netback to be a key measure as it demonstrates Touchstone's profitability relative to current commodity prices and assists Management and investors with evaluating operating results on a historical basis. Operating netback is a non-GAAP financial measure calculated by deducting royalties and operating expenses from petroleum and natural gas sales. The most directly comparable financial measure to operating netback disclosed in the Company's consolidated financial statements is petroleum and natural gas revenue net of royalties. Operating netback per boe is a non-GAAP ratio calculated by dividing the operating netback by total production volumes for the period. Presenting operating netback on a per boe basis allows Management to better analyze performance against prior periods on a comparable basis.

Capital expenditures

Capital expenditures is a non-GAAP financial measure that is calculated as the sum of exploration and evaluation asset expenditures and property, plant and equipment expenditures included in the Company's consolidated statements of cash flows and is most directly comparable to cash used in investing activities. Touchstone considers capital expenditures to be a useful measure of its investment in its existing asset base.

Working capital and net debt

Management monitors working capital and net debt as part of the Company's capital structure to evaluate its true debt and liquidity position and to manage capital and liquidity risk. Working capital is calculated by subtracting current liabilities from current assets as they appear on the applicable consolidated balance sheet. Net debt is calculated by summing the Company's working capital and the principal (undiscounted) long-term amount of senior secured debt and is most directly comparable to total liabilities.

Supplementary Financial Measures

Realized commodity price per boe - is comprised of petroleum and natural gas sales as determined in accordance with IFRS, divided by the Company's total production volumes for the period.

Royalties per boe - is comprised of royalties as determined in accordance with IFRS, divided by the Company's total production volumes for the period.

Operating expenses per boe - is comprised of operating expenses as determined in accordance with IFRS, divided by the Company's total production volumes for the period.

For information regarding such measures, including reconciliations to the nearest GAAP measures, please refer to the "Advisories - Non-GAAP Financial Measures" section in the Company's Management's discussion and analysis for the three and six months ended June 30, 2023 accompanying our June 30, 2023 unaudited interim condensed consolidated financial statements which will be available on our website (www.touchstoneexploration.com) and under our SEDAR profile (www.sedar.com).

Oil and Natural Gas Measures

Where applicable, natural gas has been converted to barrels of oil equivalent based on six thousand cubic feet to one barrel of oil. The barrel of oil equivalent rate is based on an energy equivalent conversion method primarily applicable at the burner tip, and given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value.

Product Type Disclosures

For information regarding specific product disclosures in accordance with NI 51-101, please refer to the "Advisories - Product Type Disclosures" section in the Company's Management's discussion and analysis for the three and six months ended June 30, 2023 accompanying our June 30, 2023 unaudited interim condensed consolidated financial statements which will be available on our website (www.touchstoneexploration.com) and under our SEDAR profile (www.sedar.com).

Abbreviations

bbls/d	barrels per day
boe	barrels of oil equivalent
boe/d	barrels of oil equivalent per day
Mcf	thousand cubic feet
Mcf/d	thousand cubic feet per day
MMcf/d	million cubic feet per day

Touchstone Exploration Inc.

Interim Condensed Consolidated Balance Sheets

Unaudited, stated in thousands of United States dollars

As at		June 30,  2023	December 31, 2022
Assets
Current assets
Cash		10,138	16,335
Accounts receivable		6,734	7,487
Inventory		101	129
Prepaid expenses		941	1,342
Assets held for sale		-	1,122
		17,914	26,415
Exploration and evaluation assets		65,310	51,352
Property, plant and equipment		66,098	67,162
Restricted cash		903	1,021
Other assets		412	481
Abandonment fund		1,567	1,446
Total assets		152,204	147,877
Liabilities
Current liabilities
Accounts payable and accrued liabilities		15,519	12,737
Income taxes payable		308	1,014
Current portion of bank debt		13,000	6,000
Liabilities associated with assets held for sale		-	1,672
		28,827	21,423
Lease liabilities		1,662	1,373
Bank debt		17,961	20,962
Decommissioning liabilities		11,017	11,182
Deferred income taxes		13,717	14,557
Total liabilities		73,184	69,497
Shareholders' equity
Shareholders' capital		114,743	114,635
Contributed surplus		5,583	4,905
Other comprehensive loss		(13,313)	(13,517)
Deficit		(27,993)	(27,643)
Total shareholders' equity		79,020	78,380
Total liabilities and shareholders' equity		152,204	147,877

Touchstone Exploration Inc.

Interim Condensed Consolidated Statements of Loss and Comprehensive Income (Loss)

Unaudited, stated in thousands of United States dollars (except per share amounts)

		Three months ended June 30,		Six months ended June 30,
2023	2022	2023	2022
Revenue
Petroleum and natural gas sales		7,181	12,596	15,657	23,092
Less: royalties		(2,152)	(4,519)	(4,656)	(8,105)
Petroleum and natural gas revenue, net of royalties		5,029	8,077	11,001	14,987
Other revenue		22	11	34	20
Total revenue		5,051	8,088	11,035	15,007
Expenses
Operating		2,203	2,264	4,523	4,421
General and administration		2,376	1,897	4,477	3,870
Net finance		631	617	1,062	1,560
Gain on asset dispositions		(800)	(85)	(800)	(120)
Foreign exchange loss (gain)		48	(140)	(62)	(196)
Equity-based compensation		252	399	613	643
Depletion and depreciation		1,041	975	2,418	1,905
Impairment		14	35	29	171
Other		(440)	540	(440)	540
Total expenses		5,325	6,502	11,820	12,794
(Loss) earnings before income taxes		(274)	1,586	(785)	2,213
Provision for income taxes
Current expense		180	1,547	395	2,175
Deferred (recovery) expense		(383)	301	(830)	536
Total income tax (recovery) expense		(203)	1,848	(435)	2,711
Net loss		(71)	(262)	(350)	(498)
Currency translation adjustments		207	(267)	204	133
Comprehensive income (loss)		136	(529)	(146)	(365)
Net loss per common share
Basic and diluted		(0.00)	(0.00)	(0.00)	(0.00)

Touchstone Exploration Inc.

Interim Condensed Consolidated Statements of Changes in Shareholders' Equity

For the six months ended June 30

Unaudited, stated in thousands of United States dollars

		2023	2022
Shareholders' capital
Balance, beginning of period		114,635	101,757
Equity-based settlements		108	336
Balance, end of period		114,743	102,093
Contributed surplus
Balance, beginning of period		4,905	3,466
Equity-based settlements		(39)	(119)
Equity-based compensation expense		613	643
Equity-based compensation capitalized		104	159
Balance, end of period		5,583	4,149
Other comprehensive loss
Balance, beginning of period		(13,517)	(13,219)
Other comprehensive income		204	133
Balance, end of period		(13,313)	(13,086)
Deficit
Balance, beginning of period		(27,643)	(24,446)
Net loss		(350)	(498)
Balance, end of period		(27,993)	(24,944)

Touchstone Exploration Inc.

Interim Condensed Consolidated Statements of Cash Flows

Unaudited, stated in thousands of United States dollars

		Three months ended June 30,		Six months ended June 30,
2023	2022	2023	2022
Operating activities
Net loss		(71)	(262)	(350)	(498)
Items not involving cash from operations:
Gain on asset dispositions		(800)	(85)	(800)	(120)
Unrealized foreign exchange loss (gain)		52	(139)	(67)	(279)
Equity-based compensation expense		252	399	613	643
Depletion and depreciation expense		1,041	975	2,418	1,905
Impairment expense		14	35	29	171
Other		(81)	(24)	(186)	285
Deferred income tax (recovery) expense		(383)	301	(830)	536
Decommissioning expenditures		(18)	(50)	(18)	(50)
Funds flow from operations		6	1,150	809	2,593
Change in non-cash working capital		2,969	2,383	3,079	1,290
Cash from operating activities		2,975	3,533	3,888	3,883
Investing activities
Exploration and evaluation expenditures		(4,795)	(2,932)	(13,545)	(4,806)
Property, plant and equipment expenditures		(340)	(436)	(609)	(1,116)
Abandonment fund expenditures		(56)	(30)	(122)	(59)
Proceeds from asset dispositions		250	100	250	135
Change in non-cash working capital		(4,312)	(1,186)	112	(6,806)
Cash used in investing activities		(9,253)	(4,484)	(13,914)	(12,652)
Financing activities
Changes in restricted cash		59	35	118	40
Net advance of bank debt		5,500	-	4,000	-
Net finance lease receipts (payments)		95	74	(200)	153
Issuance of common shares		69	142	69	217
Change in non-cash working capital		(122)	(143)	(252)	(250)
Cash from financing activities		5,601	108	3,735	160
Change in cash		(677)	(843)	(6,291)	(8,609)
Cash, beginning of period		10,859	10,148	16,335	17,936
Impact of foreign exchange on foreign denominated cash balances		(44)	120	94	98
Cash, end of period		10,138	9,425	10,138	9,425
Supplementary information for cash flow from operating activities:
Interest paid in cash		501	588	1,031	1,128
Income taxes paid in cash		86	520	1,099	556

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