RE: Txp14 May 2021 08:33
FinnCap today on email....
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Not much of note in Touchstone’s Q1 results, although the oil price recovery has spurred increased workover activity on its mature base oil business, stabilising production. Cash resources remain strong and Touchstone has significant remaining headroom on its credit facility, which alongside existing cash flows should cover this year’s work programme. Our risked-NAV and price target fall slightly, by 4% to 157p/sh, due primarily to lower net cash balances, but the impending Royston exploration well could materially add to this.
?Volumes stabilise as workover activity increases. Crude oil sales fell 18% y/y to 1,297 bpd but have stabilised, rising 2% q/q, following increased workover activity. This should show a larger impact in Q2, when the full benefit of the workovers is felt. Realisations were 14% higher y/y at US$52.4/bbl, helping limit the decline in revenue, which was down 9% to US$6.1m. Royalties rose in line with realisations, while unit operating costs were 8% higher y/y at US$14.7/bbl, with COVID restrictions still in full force in Trinidad. Operating netbacks improved 18% y/y to ~US$22/bbl, their highest level since Q4 2019. G&A rose US$0.37m as activity increased ahead of first gas from Coho and Cascadura, while income tax expense was up US$0.31m. This drove a Q1 reported net loss of US$0.46m, down from an underlying breakeven in Q1 2020.
?Funded for this year’s exploration programme. Funds flow from operations declined to US$0.54m from US$1.26m in the prior year period. Cash fell to US$15.5m from US$24.3m due to a US$10.6m increase in working capital and ~US$3m of exploration spend on Chinook-1 and Cascadura Deep-1. Touchstone has still drawn just US$7.5m of its US$20m term credit facility. The remaining facility alongside cash resources and expected cash flows should be sufficient to cover its 2021 exploration commitments, with cash flow ramping up sharply once Cascadura is onstream in Q4.
?Royston on track to spud this quarter. Management remains focused on bringing Coho and two Cascadura gas wells into production this year while also drilling Royston-1, the final prospect in this phase of the Ortoire exploration programme. This well is still on track to spud this quarter and is expected to take ~60 days to drill. Touchstone’s shares have stabilised after the sell-off following the disappointing Chinook-1 test results in late March. Work is still in progress to fully understand these test results, but investor appetite is likely to be rekindled with the approaching spud of the Royston-1 well. This is targeting the largest prospect on the Ortoire block so far. We assume a 430 bcf prospect, which we value at 30p/sh, assuming a 50% chance of success. Success could add ~30p/sh to our 157p/sh risked-NAV....”
Trek
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