Touchstone Exploration Inc. — Interim / Quarterly Report 2023

Aug 11, 2023

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Touchstone Exploration Inc.

Interim Condensed Consolidated Financial Statements (unaudited) As at and for the three and six months ended June 30, 2023 and 2022

TSX / LSE: TXP

www.touchstoneexploration.com

Touchstone Exploration Inc.

Interim Condensed Consolidated Balance Sheets Unaudited, stated in thousands of United States dollars

Touchstone Exploration Inc. Interim Condensed Consolidated Balance Sheets Unaudited, stated in thousands of United States dollars
As at	Note	June 30, 2023	December 31, 2022
Assets
Current assets
Cash		10,138	16,335
Accounts receivable	3	6,734	7,487
Inventory		101	129
Prepaid expenses		941	1,342
Assets held for sale	5	-	1,122
		17,914	26,415
Exploration and evaluation assets	4	65,310	51,352
Property, plant and equipment	5	66,098	67,162
Restricted cash	8	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	6	15,519	12,737
Income taxes payable	10	308	1,014
Current portion of bank debt	8	13,000	6,000
Liabilities associated with assets held for sale	5	-	1,672
		28,827	21,423
Lease liabilities	7	1,662	1,373
Bank debt	8	17,961	20,962
Decommissioning liabilities	9	11,017	11,182
Deferred income taxes	10	13,717	14,557
Total liabilities		73,184	69,497
Shareholders' equity
Shareholders' capital	11	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

Commitments (note 17)

See accompanying notes to these unaudited interim condensed consolidated financial statements.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

2

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	Three months ended	Six months ended	Six months ended
			June 30,		June 30,
	Note	2023	2022	2023	2022
Revenue
Petroleum and natural gas sales	12	7,181	12,596	15,657	23,092
Less: royalties		(2,152)	(4,519)	(4,656)	(8,105)
Petroleum and natural gas revenue, net		5,029	8,077	11,001	14,987
of royalties
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	13	631	617	1,062	1,560
Gain on asset dispositions	5	(800)	(85)	(800)	(120)
Foreign exchange loss (gain)	14	48	(140)	(62)	(196)
Equity-based compensation	11	252	399	613	643
Depletion and depreciation	5	1,041	975	2,418	1,905
Impairment	4	14	35	29	171
Other	15	(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	10	180	1,547	395	2,175
Deferred (recovery) expense	10	(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	11	(0.00)	(0.00)	(0.00)	(0.00)

See accompanying notes to these unaudited interim condensed consolidated financial statements.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

3

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

For the six months ended June 30 Unaudited, stated in thousands of United States dollars
	Note	2023	2022
Shareholders' capital
Balance, beginning of period		114,635	101,757
Equity-based settlements	11	108	336
Balance, end of period		114,743	102,093
Contributed surplus
Balance, beginning of period		4,905	3,466
Equity-based settlements	11	(39)	(119)
Equity-based compensation expense	11	613	643
Equity-based compensation capitalized	4,5	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)

See accompanying notes to these unaudited interim condensed consolidated financial statements.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

4

Touchstone Exploration Inc. Interim Condensed Consolidated Statements of Cash Flows

Unaudited, stated in thousands of United States dollars

		Three months ended	Three months ended	Six months ended	Six months ended
			June 30,		June 30,
	Note	2023	2022	2023	2022
Operating activities
Net loss		(71)	(262)	(350)	(498)
Items not involving cash from operations:
Gain on asset dispositions	5	(800)	(85)	(800)	(120)
Unrealized foreign exchange loss (gain)	14	52	(139)	(67)	(279)
Equity-based compensation expense	11	252	399	613	643
Depletion and depreciation expense	5	1,041	975	2,418	1,905
Impairment expense	4	14	35	29	171
Other	13	(81)	(24)	(186)	285
Deferred income tax (recovery) expense	10	(383)	301	(830)	536
Decommissioning expenditures	9	(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 Property, plant and equipment expenditures	4 5	(4,795) (340)	(2,932) (436)	(13,545) (609)	(4,806) (1,116)
Abandonment fund expenditures		(56)	(30)	(122)	(59)
Proceeds from asset dispositions	5	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	8	59	35	118	40
Net advance of bank debt	8	5,500	-	4,000	-
Net finance lease receipts (payments)	7	95	74	(200)	153
Issuance of common shares	11	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 Impact of foreign exchange on foreign denominated cash balances		10,859 (44)	10,148 120	16,335 94	17,936 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	8	501	588	1,031	1,128
Income taxes paid in cash	10	86	520	1,099	556

See accompanying notes to these unaudited interim condensed consolidated financial statements.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

5

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

1. Nature of Business

Touchstone Exploration Inc. and its subsidiaries (collectively, "Touchstone" or the "Company") are engaged in the business of petroleum and natural gas exploration, development, acquisition and production. The Company is currently active in the Republic of Trinidad and Tobago ("Trinidad").

Touchstone Exploration Inc. is incorporated under the laws of Alberta, Canada with its head and principal office located at 4100, 350 7[th] Avenue SW, Calgary, Alberta, Canada T2P 3N9. Touchstone's common shares are listed on the Toronto Stock Exchange and on the AIM market of the London Stock Exchange ("AIM") under the stock symbol "TXP".

2. Basis of Presentation

Statement of compliance

These unaudited interim condensed consolidated financial statements (the "financial statements") have been prepared in accordance with International Accounting Standard 34 " Interim Financial Reporting " using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. These financial statements are condensed as they do not include all the information required by IFRS for annual financial statements and therefore should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2022 (the "2022 audited financial statements").

These financial statements have been prepared on a historical cost basis. All accounting policies and methods of computation followed in the preparation of these financial statements are consistent with those of the 2022 audited financial statements. Unless otherwise stated, amounts presented in these financial statements are denominated in United States dollars ("$" or "US$"). Canadian dollars ("C$") and Trinidad and Tobago dollars ("TT$") may also be referenced herein.

These financial statements were approved and authorized for issuance by Touchstone's Board of Directors (the "Board") on August 10, 2023.

Use of estimates, judgements and assumptions

The timely preparation of financial statements requires Management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingencies at the date of the financial statements and revenues and expenses during the reporting period. Actual results may differ from estimates.

In preparing these financial statements, the judgments made by Management in applying the Company's accounting policies and the key sources of significant estimation uncertainty were the same as those applied to the 2022 audited financial statements.

3. Financial Assets and Credit Risk

As at June 30, 2023, Touchstone was exposed to credit risk with respect to its accounts receivable and finance lease receivable balances.

Credit risk is considered to be low for the Company's accounts receivable, as Touchstone's credit exposure typically pertains to monthly petroleum and natural gas sales and joint interest billings to Trinidad government-owned petroleum and natural gas entities, and value added taxes ("VAT") due from the Trinidad government. The credit risk associated with Touchstone's finance lease receivable are considered negligible as the assets are secured by the underlying equipment, with ownership transferring to the counterparties subsequent to receipt of the final lease payments.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

6

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

The following table details the composition of Touchstone's accounts receivable balance for the periods indicated.

($000's)	June 30, 2023	December 31, 2022
Petroleum sales	1,359	1,845
Natural gas sales	348	558
Joint interest billings	889	478
VAT	3,603	4,190
Other	535	416
Accounts receivable balance	6,734	7,487

As at June 30, 2023, Touchstone determined that the average expected credit loss on its accounts receivable balance was $nil. The Company believes that the accounts receivable balances that are past due are ultimately collectible, as they predominately represent VAT amounts due from the Trinidad government. Although the timing of settlement is uncertain, Touchstone has not historically experienced any collection issues. The following table discloses the aging of the Company's accounts receivable for the periods indicated.

($000's)	June 30, 2023	December 31, 2022
Current (less than 30 days)	3,413	3,398
31-60 days	471	293
61-90 days	415	307
Past due (greater than 90 days)	2,435	3,489
Accounts receivable balance	6,734	7,487

4. Exploration and Evaluation Assets

Exploration and Evaluation Assets
	Six months	Year ended
($000's)	ended June	December 31,
	30, 2023	2022
Balance, beginning of period	51,352	50,760
Additions	13,586	10,383
Transfers from (to) property, plant and equipment	401	(7,915)
Dispositions	-	(2,046)
Impairment expense	(50)	(90)
Effect of change in foreign exchange rates	21	260
Balance, end ofperiod	65,310	51,352

During the three and six months ended June 30, 2023, $174,000 and $376,000 of direct and attributable overhead charges were capitalized to exploration and evaluation ("E&E") assets, respectively (2022 - $235,000 and $436,000).

Impairment

During the three and six months ended June 30, 2023, the Company recognized E&E asset impairment expenses of $14,000 and $29,000 related to non-core properties, respectively (2022 - $35,000 and $171,000). The impairment expenses reflected licence financial obligations, partially offset by changes in long-term inflation estimates that decreased corresponding decommissioning liabilities.

The June 30, 2023 E&E asset carrying value of $65,310,000 was included in the Ortoire cashgenerating unit. No indicators of impairment were identified by the Company as at June 30, 2023.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

7

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

5. Property, Plant and Equipment

	Petroleum and
($000's)	natural gas development	Right-of-use assets	Corporate assets	Total
	assets
Cost
Balance, January 1, 2022	142,894	2,950	2,396	148,240
Additions	1,533	7	94	1,634
Change in decommissioning asset	528	-	-	528
Transfer from E&E assets	7,915	-	-	7,915
Foreign exchange translation	829	(20)	(135)	674
Balance, December 31, 2022	153,699	2,937	2,355	158,991
Additions	429	1,256	223	1,908
Transfers to E&E assets	-	(401)	-	(401)
Change in decommissioning asset	(222)	-	-	(222)
Foreignexchange translation	(4)	(25)	83	**54 **
Balance, June 30, 2023	**153,902 **	**3,767 **	**2,661 **	160,330
Accumulated depletion, depreciation and impairment
Balance, January 1, 2022	84,668	409	1,888	86,965
Depletion and depreciation	4,106	81	146	4,333
Foreign exchange translation	661	(10)	(120)	531
Balance, December 31, 2022	89,435	480	1,914	91,829
Depletion and depreciation	2,271	70	77	2,418
Foreignexchange translation	(64)	4	45	(15)
Balance, June 30, 2023	91,642	**554 **	2,036	**94,232 **
Carrying amounts
Balance, December 31, 2022	64,264	2,457	441	67,162
Balance, June 30, 2023	62,260	3,213	625	66,098

During the three and six months ended June 30, 2023, $109,000 and $221,000 of direct and attributable overhead charges were capitalized to property, plant and equipment ("PP&E"), respectively (2022 - $102,000 and $200,000).

Impairment

On June 30, 2023, the Company evaluated its petroleum and natural gas development assets included in PP&E for indicators of any potential impairment or reversal. As a result of this assessment, no indicators were identified.

Dispositions

In 2021 Touchstone executed sales and purchase agreements with a third party to dispose of three non-core licences for aggregate consideration of $350,000. Two of the property sales closed on April 30, 2022, with a net $85,000 gain on asset dispositions recorded during the three and six months ended June 30, 2022. The final property disposition closed effective May 31, 2023, and the Company recognized an $800,000 gain on asset disposition during the three and six months ended June 30, 2023.

6. Financial Liabilities and Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. Touchstone actively manages its liquidity risk through strategies such as continuously monitoring actual and forecasted cash flows from operating, investing and financing activities, and opportunities to expand its existing credit facility or to issue additional equity. The Company's nearterm development plan is strategically balanced between maintaining petroleum and natural gas production volumes, bringing natural gas exploration discoveries onto production and proceeding

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

8

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

with exploratory activities. Touchstone will continue to manage its capital expenditures to reflect current financial resources in the interest of sustaining long-term viability. Management believes that future cash flows generated from these sources will be adequate to settle financial obligations as they come due.

Refer to Note 8 "Bank Debt", Note 16 "Capital Management" and Note 17 "Commitments" for further details regarding the Company's debt structure and capital management objectives and policies. The following table sets forth estimated undiscounted cash outflows and financial maturities of Touchstone's financial liabilities as at June 30, 2023.

($000's) Undiscounted cash outflows(1)	Financial maturity by period
	Less than 1 year 1 to 3 years Thereafter
Accounts payable and accrued liabilities(2) 13,958 Income taxes payable(note 10) 308 Lease liabilities(note 7) 4,328 Bank debt principal(note 8) 31,000 Bankdebtinterest (note 8) 4,393	13,958 - - 308 - - 1,735 579 2,014 13,000 12,000 6,000 2,155 1,963 275
Total financial liabilities **53,987 **	31,156 14,542 8,289

Notes:

(1) The undiscounted cash outflows equal their carrying values, with the exception of lease liabilities and bank debt principal.

(2) Excludes the current portion of lease liabilities.

7. Lease Liabilities

Touchstone is a party to lease arrangements for a drilling rig, office space and office equipment. The following table provides a continuity of the Company's lease liabilities for the periods indicated.

	Six months	Year ended
($000's)	ended June	December 31,
	30, 2023	2022
Balance, beginning of period	2,255	2,648
Additions	1,256	7
Interest expense	128	242
Repayments	(420)	(624)
Effect of change in foreign exchange rates	4	(18)
Balance, end ofperiod	3,223	2,255
Current (included in accounts payable and accrued liabilities)	1,561	882
Non-current	1,662	1,373
Lease liabilities balance	3,223	2,255

The Company entered into a minimum five-year lease for additional office space in Trinidad effective April 1, 2023, resulting in a $1,256,000 lease liability and associated right-of-use asset recognized.

8. Bank Debt

On May 25, 2023 Touchstone's indirect wholly owned Trinidadian subsidiary, Touchstone Exploration (Trinidad) Ltd., entered into a second amended and restated loan agreement with its existing Trinidad based lender providing for a $7 million revolving loan facility in addition to the existing $30 million term loan facility (the "Seconded Amended Loan Agreement"). Aside from adding the revolving loan component, the Second Amended Loan Agreement did not alter any material terms of the prior December 21, 2021 amended and restated loan agreement.

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

9

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

The revolving loan component matures on May 30, 2024 and may be extended by additional periods of up to one year by agreement between the parties. The revolving loan component bears an interest rate of 7.29 percent for the initial year and is reset annually if extended. Outstanding principal may be repaid at any time, on or before the maturity date without penalty and any amounts repaid may be redrawn at any time. The $7 million revolving loan component was fully drawn on June 1, 2023, and the Company incurred $114,000 in related debt issuance costs during the three and six months ended June 30, 2023.

The term loan component matures on June 15, 2027 and bears a fixed interest rate of 7.85 percent per annum, compounded and payable quarterly. As at June 30, 2023, the principal balance of the term loan component was $24 million, with sixteen equal and consecutive quarterly principal payments of $1.5 million outstanding.

The following table details the movements of the Company's bank debt balance for the periods indicated.

($000's)	Term loan component	Revolving loan component	Bank debt
Balance, January 1, 2022	29,896	-	29,896
Payments	(3,000)	-	(3,000)
Accretion	66	-	66
Balance, December 31, 2022	26,962	-	26,962
Payments	(3,000)	-	(3,000)
Advances	-	7,000	7,000
Accretion	(1)	-	(1)
Balance, June 30, 2023	**23,961 **	7,000	**30,961 **
Current	6,000	7,000	13,000
Non-current	17,961	-	17,961
Bank debt balance	23,961	7,000	30,961

The Second Amended Loan Agreement contains industry standard representations and warranties, undertakings, events of default, and financial covenants, which are evaluated on an annual basis. As at June 30, 2023, the Company was compliant with all covenants provided for in the Second Amended Loan Agreement.

Pursuant to the Seconded Amended Loan Agreement, Touchstone must at all times maintain a cash reserves balance of not less than the equivalent of two subsequent quarterly interest payments related to the term loan component. Accordingly, the Company classified $903,000 of cash as long-term restricted cash as at June 30, 2023 (December 31, 2022 - $1,021,000).

9. Decommissioning Liabilities

The Company has estimated the net present value of the cash flows required to settle its decommissioning liabilities to be $11,017,000 as at June 30, 2023 based on an inflation adjusted undiscounted future liability of $17,253,000 (December 31, 2022 - $11,182,000 and $17,920,000, respectively). Decommissioning liabilities were estimated as at June 30, 2023 using a weighted average long-term risk-free rate of 5.2 percent and a long-term inflation rate of 2.1 percent (December 31, 2022 - 5.3 percent and 2.4 percent, respectively).

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

10

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

The following table summarizes the movements of Touchstone's estimated decommissioning liability provision for the periods indicated.

	Six months	Year ended
($000's)	ended June	December 31,
	30, 2023	2022
Balance, beginning of period	11,182	10,012
Liabilities incurred from development activities	10	268
Liabilities settled	(18)	(130)
Accretion expense	123	222
Revisions to estimates	(272)	732
Effect of change in foreign exchange rates	(8)	78
Balance, end ofperiod	11,017	11,182

10. Income Taxes

The following table is a reconciliation of income taxes calculated by applying the applicable aggregate Trinidad statutory petroleum tax rate to net earnings (loss) before income tax expense.

($000's unless otherwise stated)	Three months 2023	ended June 30, 2022	Six months 2023	ended June 30, 2022
Net (loss) earnings before taxes	(274)	1,586	(785)	2,213
Trinidad statutory income tax rate	55.0%	55.0%	55.0%	55.0%
Expected income tax (recovery) expense at statutory tax rate	(151)	872	(432)	1,217
Effect on income tax resulting from:
Change in income tax assets not recognized	(710)	69	(1,038)	103
Income tax rate differential	444	(167)	499	306
Other	214	1,074	536	1,085
Income tax(recovery) expense	(203)	1,848	(435)	2,711

The tax regulations and legislation and interpretations thereof in the various jurisdictions in which the Company operates are continually changing. As a result, there are generally a number of income tax matters under review, and Touchstone believes that the provision for income taxes is adequate.

11. Shareholders' Capital

Issued and outstanding common shares

The Company is authorized to issue an unlimited number of voting common shares without nominal or par value. The holders of the common shares are entitled to one vote in respect of each common share held at all meetings of shareholders and the rights to any dividends declared.

	Number of shares	Shareholders' capital ($000's)
Balance, January 1, 2022	210,731,727	101,757
Issued pursuant to private placements, net of fees	19,924,400	12,269
Equity-based settlements	2,381,099	609
Balance, December 31, 2022	233,037,226	114,635
Equity-based settlements	**390,334 **	108
Balance, June 30, 2023	233,427,560	114,743

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

11

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

Equity compensation plan

Touchstone has a share option plan pursuant to which options to purchase common shares of the Company may be granted by the Board to directors, officers, employees and consultants of Touchstone. Equity-based compensation expense is recognized as the options vest. Unless otherwise determined by the Board, vesting typically occurs one third on each of the next three anniversaries of the grant date as recipients render continuous service to the Company, and the share options typically expire five years from the grant date. The maximum number of common shares issuable on the exercise of outstanding share options at any time is limited to 10 percent of the Company's issued and outstanding common shares. The following table summarizes changes in outstanding share options and the related weighted average exercise prices for the periods indicated.

	Number of	Weighted average
	share options	exercise price
		(C$)
Issued and outstanding, December 31, 2022	11,233,334	0.72
Granted	3,338,000	1.43
Exercised	(2,381,099)	0.21
Forfeited	(261,800)	1.47
Issued and outstanding, December 31, 2022	11,928,435	1.00
Exercised	(390,334)	0.24
Issued and outstanding, June 30, 2023	11,538,101	1.03
Exercisable, June 30, 2023	8,084,769	0.82

During the three and six months ended June 30, 2023, the Company recorded equity-based compensation expenses of $252,000 and $613,000, respectively (2022 - $399,000 and $643,000).

Weighted average common shares

The following table sets forth the details of weighted average common shares used in calculating net loss per common share for the periods indicated.

	Three months	ended June 30,	Six months	ended June 30,
	2023	2022	2023	2022
Weighted average common shares outstanding - basic	233,143,798	212,204,183	233,090,807	211,517,236
Dilutive impact of equity-based compensation	-	-	-	-
Weighted average common shares outstanding - diluted	233,143,798	212,204,183	233,090,807	211,517,236

There was no dilutive impact to the weighted average number of common shares for the three and six months ended June 30, 2023, as approximately 3.6 million and 3.7 million share options were excluded from the diluted weighted average share calculation as they were anti-dilutive, respectively (2022 - 4.9 million and 5.6 million).

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June 30, 2023 Interim Condensed Consolidated Financial Statements (unaudited)

12

Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

12. Petroleum and Natural Gas Sales

Touchstone derives its primary revenue from contracts with Trinidad government-owned entities through the transfer of commodities at the end of each month. The following table sets forth petroleum and natural gas sales by product type for the periods indicated.

($000's)	Three months 2023	ended June 30, 2022	Six months 2023	ended June 30, 2022
Crude oil	6,370	12,596	13,870	23,092
Natural gas	811	-	1,787	-
Petroleum and naturalgas sales	7,181	12,596	15,657	23,092

At June 30, 2023, accounts receivable from petroleum and natural gas sales were $1,707,000 (December 31, 2022 - $2,403,000).

13. Net Finance Expenses

($000's)	Three months 2023	ended June 30, 2022	Six months 2023	ended June 30, 2022
Interest income	(17)	(7)	(45)	(8)
Finance lease interest income	(12)	(17)	(24)	(34)
Lease liability interest expense (note 7)	77	63	128	126
Bank debt interest expense(note 8)	538	589	1,063	1,178
Accretion on bank debt(note 8)	2	3	(1)	47
Debt issuance expense(note 8)	114	-	114	-
Production liability revaluation (gain) loss	(146)	(80)	(308)	119
Accretion on decommissioning liabilities(note 9)	63	54	123	120
Other	12	12	12	12
Net finance expenses	**631 **	617	**1,062 **	1,560
Cash net finance expenses	712	641	1,248	1,275
Non-cash net finance (income) expenses	(81)	(24)	(186)	285
Net finance expenses	631	617	1,062	1,560

14. Financial Instruments and Market Risk Management

Financial instruments

As of June 30, 2023, the Company's financial instruments included cash, accounts receivable, restricted cash, finance lease receivable (included in other assets on the interim condensed consolidated balance sheets), accounts payable and accrued liabilities, income taxes payable, lease liabilities and bank debt.

The Company's financial instruments that are carried at fair value include cash, restricted cash and the production liability included in accounts payable and accrued liabilities. The carrying values of Touchstone's accounts receivable, accounts payable and accrued liabilities and income taxes payable as of June 30, 2023 approximate their fair values due to the short-term nature of these instruments.

Market risk management

The Company is exposed to certain financial risks inherent in the international oil and natural gas industry including, but not limited to, commodity price risk, foreign exchange rate risk, credit risk (refer to note 3) and liquidity risk (refer to note 6). The risk exposures are proactively reviewed by

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Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

Touchstone, and Management seeks to mitigate these risks through various business processes and controls. Management of cash flow variability is an integral component of the Company's business strategy. Changing business conditions are monitored regularly and, where material, reviewed with the Board to establish risk management guidelines to be used by Touchstone.

Commodity price risk

Touchstone's operational and financial results are largely dependent on the commodity prices received from crude oil, natural gas and natural gas liquids production. The Company has entered into a long-term fixed price contract for its natural gas production from its Ortoire property. However, movements in crude oil and liquids pricing could have a significant positive or negative effect on the Company's comprehensive income (loss) and cash flows. To mitigate this risk, Touchstone maintains a risk management strategy to protect funds flow from operations from the volatility of crude oil and liquids pricing. The Company's strategy focuses on the periodic use of puts, costless collars, swaps or fixed price contracts to limit exposure to fluctuations in crude oil and liquids prices while allowing for participation in price increases. Touchstone had no commoditybased risk management contracts in place as at or during the three and six months ended June 30, 2023 and 2022. The Company will continue to monitor forward commodity prices and may enter into future commodity-based risk management contracts to reduce the volatility of crude oil and liquids sales and protect future development and exploration capital programs.

Foreign currency risk

Foreign currency exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company's financial assets or liabilities. Touchstone's foreign currency policy is to monitor foreign currency risk exposure in its areas of operations and mitigate that risk where possible by matching foreign currency denominated expenses with petroleum and natural gas sales paid in foreign currencies. The Company attempts to limit its exposure to foreign currency risk through collecting and paying foreign currency denominated balances in a timely fashion. Touchstone does not hedge its foreign exchange risk.

As the Company operates in Trinidad, fluctuations in the exchange rate between the TT$ and the US$ could have a significant effect on financial results. Although the sales prices of crude oil and liquids are determined by reference to US$ denominated benchmark prices, the majority of the invoices for such sales are paid in TT$, exposing Touchstone to foreign exchange risk. To mitigate this risk, the Company attempts to match revenues received in TT$ by entering into contracts denominated and payable in TT$ when possible. In addition, Touchstone has US$ denominated debt and related interest payments. These risks are currently mitigated by the fact that the TT$ is informally pegged to the US$ and all natural gas sales are denominated and payable in US$.

The Company has further foreign exchange exposure on cash balances denominated in C$ and pounds sterling, head office costs and the production liability denominated and payable in C$, and costs denominated and payable in pounds sterling required to maintain its AIM listing. Any material movements in the C$ to US$ and the pound sterling to US$ exchange rates may result in unanticipated fluctuations or have a material effect on Touchstone's reporting results.

15. Other Expenses

For the three and six months ended June 30, 2022, the Company accrued $540,000 in estimated costs related to an oil spill that occurred as a result of vandalism in June 2022. During the three and six months ended June 30, 2023, Touchstone received partial insurance proceeds of $440,000 relating to the incident.

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Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

16. Capital Management

Touchstone actively manages its capital structure and adjusts it in response to changes in economic conditions and the risk characteristics of its underlying assets. Touchstone considers its capital structure to include shareholders' equity, working capital and bank debt. The Company's long-term goal is to fund current period decommissioning and capital expenditures necessary for the replacement of production declines using only cash flows from operations. Exploration and development activities will be financed with a combination of cash flows from operations and other sources of capital. Touchstone uses share equity and bank debt as its primary sources of capital.

Touchstone considers funds flow from operations to be a key measure of capital management and 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.

Touchstone 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 as current assets minus current liabilities as they appear on the interim condensed consolidated balance sheets. Net debt is determined as the sum of the Company's working capital and the principal (undiscounted) long-term amount of senior secured bank debt.

When evaluating the Company's capital structure, Management's long-term strategy is to maintain net debt to trailing twelve-month funds flow from operations at or below a ratio of two times in a normalized commodity price environment. Touchstone's net debt to funds flow from operations ratio has exceeded its target based on continuing facility capital expenditures required to bring its natural gas discoveries onstream.

Touchstone also monitors its capital management through the net debt to managed capital ratio. Management defines managed capital as the sum of net debt and shareholders' equity. The Company's strategy is to utilize more equity than debt, thereby targeting net debt to managed capital at a ratio of less than 0.4 to 1.

Net debt, managed capital, net debt to funds flow from operations ratio and net debt to managed capital ratio are considered non-IFRS capital management measures and therefore may not be comparable to similar measures presented by other companies. The following table sets forth Touchstone's internal capital management calculations for the reporting periods indicated.

($000's)	Target measure	June 30, 2023	December 31, 2022
Current assets		(17,914)	(26,415)
Current liabilities		28,827	21,423
Working capital deficit (surplus)		10,913	(4,992)
Principal non-current balance of bank debt		18,000	21,000
Net debt		28,913	16,008
Shareholders'equity		79,020	78,380
Managed capital		107,933	94,388
Trailing twelve-month funds flow from operations(1)		1,756	3,540
Net debt to funds flow from operations ratio	At or < 2.0 times	16.47	4.52
Net debt to managed capital ratio	< 0.4 times	0.27	0.17

Note:

(1) Trailing twelve-month funds flow from operations as at June 30, 2023 includes the sum of funds flow from operations for the six months ended June 30, 2023 and funds flow from operations for the July 1 through December 31, 2022 interim period.

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Notes to the Interim Condensed Consolidated Financial Statements (unaudited) For the three and six months ended June 30, 2023 and 2022

17. Commitments

Touchstone has contractual obligations in the normal course of business which include minimum work obligations under various operating agreements with Heritage Petroleum Company Limited ("Heritage"), exploration and commitments under its Cory Moruga and Ortoire block exploration and production licences with the Trinidad and Tobago Ministry of Energy and Energy Industries, and various lease commitments for office space and motor vehicles. The following table sets forth the Company's estimated minimum contractual payments as at June 30, 2023.

($000's) **Total **	Estimatedpayments due by year
	2023 2024 2025 **Thereafter **
Operating agreements 22,768 Exploration agreements 15,562 Other commitments 922	4,998 5,218 5,335 7,217 243 6,514 6,628 2,177 246 182 207 287
Minimumpayments 39,252	5,487 11,914 12,170 9,681

Pursuant to its operating agreements with Heritage, the Company is required to fulfill minimum work obligations on an annual basis over each licence term. With respect to these obligations, Touchstone has four development wells and two heavy workover commitments to perform prior to December 31, 2023.

As of June 30, 2023, Touchstone is obligated to drill two exploration wells on its Ortoire concession prior to the end of the July 31, 2026 licence term.

The Company is involved in a limited number of legal claims arising in the normal course of operations. Such claims are not expected to have a material impact on Touchstone's results of operations or cash flows.

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Corporate Information

Directors John D. Wright Chair of the Board

Jenny Alfandary Paul R. Baay Priya Marajh Kenneth R. McKinnon Peter Nicol Beverley Smith Stanley T. Smith Harrie Vredenburg

Corporate Secretary Thomas E. Valentine

Officers and Senior Executives Paul R. Baay President and Chief Executive Officer

Scott Budau Chief Financial Officer

James Shipka Chief Operating Officer

Brian Hollingshead Vice President Engineering and Business Development

Head Office

Touchstone Exploration Inc. 4100, 350 7th Avenue SW Calgary, Alberta, Canada T2P 3N9

Registered Office

3700, 400 3rd Avenue SW Calgary, Alberta, Canada T2P 4H2

Operating Offices Touchstone Exploration (Trinidad) Ltd. 30 Forest Reserve Road Fyzabad, Trinidad, W.I.

Primera Oil and Gas Limited 14 Sydney Street Rio Claro, Trinidad, W.I.

Stock Exchange Listings Toronto Stock Exchange London Stock Exchange AIM Symbol: TXP

Banker Republic Bank Limited Port of Spain, Trinidad, W.I.

Reserves Evaluator GLJ Ltd. Calgary, Alberta, Canada

Legal Counsel Norton Rose Fulbright LLP Calgary, Alberta, Canada London, United Kingdom

Transfer Agent and Registrar Odyssey Trust Company Calgary, Alberta, Canada

Link Group London, United Kingdom

UK Nominated Advisor and Joint Broker Shore Capital London, United Kingdom

UK Joint Broker Canaccord Genuity London, United Kingdom

UK Public Relations FTI Consulting London, United Kingdom

Auditor

Alex Sanchez Vice President Production and Environment

KPMG LLP Calgary, Alberta, Canada

Cayle Sorge Vice President Finance

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