Touchstone Exploration Inc. (TXP.L) Earnings Call Transcript & Summary

Next question, when can fracture stimulation on 2 central block wells be executed? What is the cost the TXP Financial capable of doing this now?

So first off on costs, preliminarily, we're working with service providers. It's about $0.5 million to $1 million for a frac job. The equipment is on the island, but I will say it's not in our Board-approved budget yet, but we're still working on the technical aspects and getting things in place to do those jobs when the time is right. I think we touched on in the presentation, fracking is done offshore quite a bit. onshore, very limited. So the equipment is there. People are capable, service provider are capable. So let us do the science, do the homework, and then we'll go to the Board for that approval when the time is right.

Yes. And we talk about central block fracking. -- that could also be a Cascader right Yes. I think we're looking at both of those. What's the remaining cost of the Cascadura compressor and installation? And is TXP fully funded for this?

Yes. So we've procured it, obviously. It's being retrofitted in Texas. The total net cost for that job, which is the unit, shipping, installation, commissioning, everything is about $5.4 million net to us for our share. So far, we spent roughly 30% of that with the remainder to be spent up until Q2 when it's installed. This is approved and funded.

Next question is how much unrestricted cash does Touchstone have today and not working capital actually available cash? I think the easiest way to answer this would be to look at the financials that came out last week. We had about $12.6 million of cash on the balance sheet, and then we raised about another $8 million after that. So that kind of gives you -- there keeps to be this question that keeps popping up on unrestricted cash. And I think when we talk about restricted or unrestricted, there's no differentiation on our balance sheet. Basically, there's a very small sort of for prepays. But besides that, all the cash is available to us. 19, how do NGC and Heritage fund their 20% to 35% obligations, prefunding or reimbursement? Do they also carry that receivable backlogs? Do you accept that bond scheme to return? They fund -- and actually, NGC isn't our partner in anything yet. They are in the licenses, but not as far as funding goes. Heritage funds all of their costs in advance. So we submit budgets and those kind of things. It's under a joint operating agreement. So yes, I'm not sure about the backlogs for Heritage or NGC. I don't know the answer to that. And do you expect VAT bonds return? The minister -- the Finance Minister in his budget that he just came out within the new government actually took a different approach to the bonds. He says he wants to clean it up and then replace the VAT with some sort of tax that the energy industry would be exempt from. So theoretically, it would make this whole receivable issue go away. But we obviously don't see -- haven't seen the details. And I think the the details are required to decide on that one. 20. question number that we have here. Based on current cash and production, assuming no new CB drilling, can TXP meet all the scheduled debt repayments to the 2027 reset if capital is limited to compressor completions, CAS-2 5 perforations and CAS-4 tie-in. If not, what is the shortfall? How many -- how would this change if the VAT refund were received? Right now, the only thing we have approved from a budget point of view is the compressor and CR3. I think we've talked about that a whole bunch of times. All the other things that you see in there, we're evaluating. And when the VAT refund comes in, that's when the Board is going to have to sit down and prioritize what projects we want to go after or accelerate debt repayments or whatever it is, but we'll look at everything. Is there anything you can do to convince us long-term shareholders that there's light at the end of the tunnel? I think it's a really fair question. But I think when you look at the presentation that you just saw, you can see the asset base that we've now put together. I mean we are the largest independent onshore landowner producer in Trinidad. We've got all the gas blocks tied up. The new marketing that we now have with the Shell facility, the Central Block facility as well as what we've got in the fixed price contracts, like all the pieces are there. Now we just have to figure out the way that we can take advantage of this. And obviously, the big advantage is for us to get into the higher-priced gas market. The debt covenant waivers only cover 2025. What is the specific plan to satisfy that in 2026? I think I talked about that previously. I think we can move on. Why has the Board decided not to pursue litigation regarding the financing? We reserved all our rights under that by advice of counsel. And I don't think this is the right form for us to have that discussion. We'll deal with that internally. Is Central Block drilling fund drilling fully funded? Is the compressor and its use now funded. Correct. That was the reason in the last equity you saw that in the use of proceeds that CR3 and compressor are the funding and the use of funds. In September 29 September, you say the compressor for the facility had been acquired, but completion of the project is not expected until Q 2026. Why is it taking at least 9 months to complete the action? I'll let Brian answer that one for you, Brian?

Sure. So there was a picture in the presentation, but these are big, big units. They're not off the shelf. They're custom for your process. Due to high demand in the U.S. and Canada right now, a new compressor unit is actually about 60 weeks. So well over a year through our facility engineers contacts in Canada and the U.S., he was able to source a new one down in Texas that fits our mold with a bit of retrofit work with installation in only 30 weeks. So in the meantime, we're also doing prep work. So yes, it's going to take 30 weeks to get there, but we need to build up the cement pad a little bit because this is a heavy, heavy unit. We need to create some tie-in piping and that sort of thing, procure some valves. So in parallel with this whole unit, we're going to do all the ancillary work as well.

Yes. I'll move on to some of the other questions that came in live as well. One of the questions here from Ash was how does TXP forecast to repay the leverage? If you look in the last MD&A, there's a schedule. These are all term loans that we have here, which make them a little bit different than other oil and gas companies. So you can see the payment schedule that works out. And in the budget and the model that we put forward, those payment terms are basically met and they're paid down. Most of the loans are paid down over a 5-year or a 6-year period. And obviously, the Central Block facility, which makes up $30 million of the debt, its first payment is in May of 2026, so coming up in the next little while. But you can see how the leverage gets paid down. Now the Board may decide to accelerate that at some point if we had extra cash or whatever the case was, we could look at doing that.

Paul, you might just comment how much we've paid down to date already.

Yes. So the other loans that we paid down, I think we're just over $9.5 billion that we paid down, and those are those quarterly payments. You'll see them they're about $1.5 million when you look at the financial statements. So there's sort of this -- already this discipline going into paying back debt. that we see. So yes, that's a good point, and thanks for that in there. There's another question here. What is the expectation for the revised realized gas price for Central Block from May 27? Currently, Q3 is at $3. I think there was a -- this question may have come in before we actually got to that part of the presentation. But I think what you can see is you can see that change in the price. And what really happens is the Henry Hub component of the pricing falls away and we get to more of a pure LNG, although there is a little Brent pricing in there as well. But if we look at last month, it virtually doubled. It went from $3 to $6 when we were able to sell to that higher price contract. So I think that kind of gives us -- but this isn't a negotiation. It's different than our contract. This is actually a contract that we already see. We already see the markers in this. So we've got a much higher degree of certainty...

I think it's important to note, sorry there, Paul, like obviously, as the markers that go into that price change, which they change every second, they're traded on the markets, we'll see that pricing change as well. So it sort of leads into the balance. We have a fixed gas price and then these LNG prices, which can float as well.

Yes. is asking about CR3. What is the commercial chance of success?

There was a really good slide in the presentation. And actually, it's on our website in our corporate presentation. I really like it. It shows the Carapill Ridge pool, the sizable pool with the CR1 and CR2 well in it. You can see the CR3 well trajection that we're looking to spud here end of the week. It's offset CR1 by about 500 meters or so, and it shows the various well tests in CR1 as well. So we're really excited about this well. I think that lower section that has the shale on top tested 25 million a day from. We're going to definitely target that. We also have the acceleration zone from the top.

I guess what the budget shows though is that the budget only includes the accelerated zone, right?

Good point. Yes. So our models -- CR1 and CR2, they've been on for about 20 years. These are fantastic wells. They came on at about 20 million to 40 million cubic feet per day, Ken. So stable production, big wells. We're modeling just the acceleration, which would be an IP of 10 million a day and declining from there. So we're definitely modeling and budgeting a very conservative uphole case. Should we -- should that virgin section come in, in the lower, I think it's a game changer.

Great. asked a question, what accounts for steady increases in the production at Central Block? Are they sustainable? And any further room in production will be coming in from what other measures have been taken. Maybe you can -- I know you talked about it in there, but...

Sure. Yes, our team did a fantastic job. So we took it over in May at the plant at Central Block. Right away, the facility guy went in and found optimization opportunities throughout. So what he did is he lowered the suction pressure through some facility modifications. And basically, that causes the wells to see a lower wellhead pressure, which helps them flow more. So we were able to increase production about 20% with that small change, which didn't cost anything. It was just changing some set points and increasing the speed of the compressor. We're going to continue to look to do that. There will be a limit, obviously, on how low we can go, but we're going to continue to slowly lower it down and gauge the reaction. And I think -- we talked about the CA compressor project, but the things we see at Central Block were just get us more excited about Cascadura and getting compression in there because everything at Central Block with the lower pressures, we see quite big jumps in rates. And at Cascadura, we don't have compression. So we're excited to get that unit in.

has got another question here. The sudden departure of the Executive VP was concerned to the market and what are the plans to fill that void. I think part of the whole restructuring that Ken talked about as well was look at everything that we looked at. And basically, we've taken a rule there and moved that into the engineering group. Part of that's moved into the engineering group. I'm personally picking up the HSE and the security side of things. So we're just redistributing it in what we're doing and moving it around. I think number one is cost saving, but we want to make sure that all the departments align. Best idea of moving it into the engineering group is we now have we start with drilling, we go right through to production, right through to completions, everything else. It's all within one group now. So hopefully, that will compress time lines and get some really good communications between all the departments there. Ash just one other question, what is the goal for TXP for the recent strategic investor? I think that strategic investor came to us basically saying that he saw a great opportunity here, wanted to help us support us in doing the placing that we needed to do from an equity point of view to meet our banking requirements. He's obviously got worldwide expertise in a number of things, but they do -- he does have a bunch of oil interest as well. But I think the real main focus that he sees is the asset base that we have, the opportunity that we have to grow it. And we're really excited to have that. And we wanted to try to get some institutional shareholders onto our registry. So it's really nice between him and the Woods Group that did the convertible debenture that we've been able to do that over the last little while. I think it's certainly changed that. I was going to go with a couple more questions here. Can you please detail what needs to happen? This is from Kirk. Can you please detail what needs to happen to receive the VAT receivable? That really is the $64 in our case, USD 8 million to USD 10 million question, Kirk. We're going to go work on that and figure that out. Normally, what happens is the ministry will come up with an announcement at some point, but there's no rhyme or reason to it. So what we're going to try to do is accelerate that. I think the government appreciates that we don't take any money out of the country. We drill everything back into the country. So if we were to get that VAT receivable, they know that it's going back into the ground. So that's part of the discussion that we'll certainly have with them in what we've done. The one last question here from Aiden would be why did none of the executives or directors buy shares during the private placement? A strange rule under the TSX because the convertible debenture that was done earlier in the year by what was deemed an insider, none of the insiders were able to participate in that placement. We actually were all going to all going to do that. We were going to try, but under the TSX rules, we weren't able to do that. Now I know there's a bunch more questions here. One of them that I really like the question here would be from WW -- we'd like to see Xavier presenting more and taking on some larger roles. Are there any plans for this? It's -- I know Zab has got a really good following out there. And certainly, he's a treasurer for us and then he knows all of the Trinidad stuff. So part of that whole restructuring that we've done is he's going to be heading up that subsurface team now, and he's going to have more direct impact working with Brian and reporting directly to me. So you will see him more for sure. And just to give you an example, he spent 3 or 4 days with all of our directors and the Board at the last strategic review that we just did last week. So he's definitely getting more involved. And I'm really excited to see that he's got a following out there because we sure think he's great as well.

That's great, Paul, Kenneth, thank you very much indeed for updating investors. We'll shortly redirect investors, Paul, to provide you with their feedback. But before doing so, I wondered if I may just ask you for a couple of closing comments, and then I'll redirect investors for their feedback.

Yes. Really appreciate this. I appreciate everybody coming in. I think it's fair to say that it's been a pretty tough year this year for us, going right back to when we started to do the Shell acquisition back in May. But I hope everybody appreciates we haven't tried hiding. We've been out here giving the presentations, answering the questions, taking the calls, doing everything that we could do. Sometimes we have to deliver bad news. Certainly, CAS was bad news, and we delivered it. There's no real good way to do it, except I think, to give everybody all the information, which is exactly what we're doing. And the other thing, too, I think, is going forward, there's lots of plans, there's lots of levers for us to pull here. But I think taking all that away, we have to look at the asset base that we put together in Trinidad, the team we put together in Trinidad, the opportunities we've got in Trinidad. This is -- we own everything we could possibly want now. Now we just have to implement the plan. And I'd leave you with 2 examples of how things have improved. And I know there's a lot of shareholders that sort of have this concern that we don't implement everything or don't do things in a timely manner. If you take a look at CAS-5 from the way it was drilled on time, on budget, you look at it was tied in, in 20 days and on production, that should give people a real good comfort. If you take a look at the Central Block acquisition, -- it's outperforming the curve that we wanted to do. We only bought that thing in May. Brian and his team have ramped up production by 20% without hardly spending any money. We've got a pad already there. We got a drilling -- a rig moving in to drill the first well, and it's only been really 8 months since we've had this. So I know we get criticized a lot for not moving quickly. And we were joking here a little bit about the question about the 60 weeks for getting the compressor in. But as was said, it's not an Amazon project, right? Like these are things that are big projects that take big times. And we tend to punch above our weight for the size of company that we are. And I think when people go and see the assets on the ground, they always tell us that. So we'll continue to -- good or bad, we're going to stand in front of you and give you the information, and we'll continue to push forward as we go, but we really appreciate your time today.