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

Good afternoon, and welcome to the Touchstone Exploration Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question during the meeting itself. However, the company will review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand over to Paul Baay, CEO. Good afternoon, sir.

Thank you very much for the introduction, and I welcome everybody today. Really exciting for us today that we're rolling out our new presentation and rolling out our 5-year plan for what we see for Touchstone as we go forward. And this is a lot driven by the Cascadura facility coming onstream here in September and really changing the magnitude of things that we can now do within the country, and we'll walk you through that. I'll walk you through that. I also have Scott Budau, our Chief Financial Officer, here. So if some of those questions are around some of the financial numbers, we can talk about that at the end of the day as well. So let me start out. And you'll see the tagline on the bottom of our new presentation evolving towards a sustainable, full-cycle exploration and production company. I think the piece that's kind of missing off of there, but we'll talk about is it's also a fully funded model now with the cash flows that we've got going. We can fund this really exciting program as we go forward. So on that note, let me flip you over to our 5-year vision. What we really have in place here now is the sustainable base production of over 10,000 BOEs a day that really provides that cash flow model for us to do all the other things that we -- that we've been talking about doing and that we want to continue to do. But the big takeaway today from this new presentation is really that first item, which is we now have about 42,000 BOEs a day of capacity for producing both gas and oil in the country. I know there's been a lot of long delays. Certainly, there was a long delay on bringing Coho on and Castor longer than I think any of us would have liked. But now that we have those in place and we have all the permits in place to take those facilities to full volume, it really does sort of accelerate how fast we can get that next 20,000 BOEs a day. We look at that Cascadura facility, it's designed for 200 million a day, initial capacity is 90 million a day, plus the liquids that we're seeing. So it's a very large facility for us to fill. And then Coho with 24 million cubic feet a day, that's just sort of a second add-on for us. So the big takeaway, as I see it today, is that first box, that ability that we have now for 42,000 BOEs a day of production. The organic growth we talk about is the inventory of wells that we have, the drilling that we have. And again, where the company has really changed now is we were basically an exploration company. We have these big peaks and valleys depending on how we -- the exploration was working out for us, sometimes better, sometimes not, what we thought it was going to be. What we now have is this really nice base production that's got this little ability on the exploration side to have these step changes if we have the exploration success that we anticipate having. So that's that organic growth model. The opportunities to expand the asset base, it's a combination of things. You will see what we did on the onshore bid round, added some more on that. There's also some opportunities for us to pick up some additional production on the island to add as long as -- as well as some of the technology that we've been seeing with the new 3Ds that we've seen and 2Ds, we can rework some of the plays that we already have. On top of that, we're going to continue to keep a strong focus on our ESG. I'll talk about that a little bit more. The safety part is really, really key for us. And I think when you look at the 2 plants that we brought on with no LTIs, I really commend the team for focusing on that. And then the last thing that we've done in this 5-year plan is to really start focusing on obviously becoming a much larger company. And we think that one of the goals we should be looking at here is to join that FTSE 250, which puts us somewhere around a GBP 700 million market cap sometime in the next 5 years. And that's our objective and what we see. So that gives you sort of a high-level view of what we see in the 5-year plan. What are the key things there for us when we look at Trinidad and what you'll notice in this presentation is our focus is going to be 100% on Trinidad. That is what we're going to do that -- we think that we can be a big fish in a small pond here in Trinidad. And we really also think we understand some of the dynamics that go on in working in that particular country. So first of all, the Venezuelan Basin, we're on the updip end of that, biggest hydrocarbon basin in the world. The rocks here, spectacular. We've drilled 70 wells. We have not drilled a dry hole where we didn't find hydrocarbons. Some of them obviously haven't been economic to produce. But you're in a hydrocarbon window here, which is just a unique position anywhere in the world. First oil was discovered here in 1908. So there's lots of expertise. You look at the talent pool in Trinidad for engineers, geologists, people working in the industry, it's a very, very deep talent pool. So that's a really, really great opportunity for us. Demand, about 4 billion cubic feet a day is what they could use on the island. Right now, they're only producing 2.7 billion. You can see in the bottom corner of this slide is a picture of the Point Lisas petrochemical area, and this is being starved of gas production, they need to get more gas production. So whether it's gas or oil that we find, doesn't matter, it's going to market, and that's one of the things we love about Trinidad. Great pipeline infrastructure. Even the Cascadura facility, although the facility was a big chore, the pipeline was only a couple of kilometers. I think it was actually about 1.7 kilometers that NGC had to build for us. So it's not like it was a huge tie-in to get us into where we wanted to. We also think there's additional opportunities in Trinidad to expand that base, and we'll talk a little bit more about those. And this is a super supportive government. The Energy Minister is on record saying they want to produce as much hydrocarbon as quickly as they can. His definition of quickly in mind may be different, but I think the intent is the same here. They want us there as a business and that's a wonderful thing. And it's a well-regulated energy sector. It's got a good health and safety regulation for us. And it makes it so as a good environment for us to work in. So that's why we want to be in Trinidad. Just want to back up a little bit from where we've come from and to where we're at today. And basically, we started in 2010, about 143 barrels a day, bought one little property and about 650 net acres. And where you see where we're at, at the end of the various transactions that we have in front of us, whether it be the property swaps that we have, the crown onshore bid rounds that we're in the midst of, concluding our big Ortoire block. We've now got 126,000 acres of land, well over 10,000 BOEs a day of production. We always strived in some of these earlier presentations. I know there's lots of shareholders that have been longtime shareholders. We said we wanted to be the largest independent onshore producer. We are that now. And I think our next goal really is to get to that 30,000 BOE a day range in what we're looking at doing. And with this land base, we can get there. Just want to back up a little bit. I'm not sure how this is coming through on your presentation, but it looks like it's sort of tripled up on mine, but it basically shows that we had -- this big land base has given us this big asset base, which is the 75 million barrels of reserves, and then what we end up with is this nice production base of over 10,000 BOEs a day. 2023 was a real transformational year for us. We went from roughly 1,500 BOEs a day to where we're now, as I see, well over 10,000 BOEs a day. We also signed up the Rio Claro, the Balata Deep. We were successful on the Cipero block in the onshore bid round. And over the last couple of weeks with the help of our local team, we've been able to come to terms with the government on what we can do on Charuma. So we'll be able to hopefully get that nailed down here. So this -- it's been a big year for us in 2023. And everything is probably a couple of months later than what we would have wanted and what we expected, but it's really great that the team got it across the line. Future growth and this is a shot of me talking to the Energy Minister, and as I've said before, probably not my best body language, sitting there with my arms crossed, talking to him. But I think it sort of talks a little bit to the relationship that we have in Trinidad. We are a trusted partner in Trinidad. We've been able to deliver on what we said we would deliver on, and we've been able to do it in a safe manner. And I think that's really important for them. So what's the long-term view? And I honestly couldn't have sat here a year ago and given you a 5-year view of where we were going to go with Touchstone, but it is very clear, it's very succinct. And it's really a unique situation for us to have this ability to look at the 5-year growth. We've got these high-quality assets that we've now put together. We've got over 200 drilling locations. And I sort of define those as -- the drilling locations you end up with A-type locations, Bs and Cs, and sometimes when you get all the way through the As, you start to compromise on the quality. But because of this big inventory we have and every time you drill a well in Trinidad, you learn something new, sometimes good, sometimes not. But we can reshuffle that deck. And with this big portfolio that we now have, we can do that, and it's not pure exploration, it's also development wells that we can drill. And that's really the exciting part when you look at 50 development locations that we have on the books. We think that we'll probably end up going to a 2-rig drilling program. One of those rigs will be what we brought into the country with Star Valley, and that will be focused on mainly our deeper operations on the east side of the Ortoire block. And then we'll have another rig that will either do some of the shallow wells, let's say, at Coho and in that area and down south on some of our legacy assets. But the whole goal here is to add that 20,000 BOEs a day from where we are today. And with that drilling inventory, we can do that. I wanted to just focus a little bit on Ortoire because I think it is really the short-term focus of what we want. So if you look on that map, you see Coho there, where we've got that gas plant, 24 million a day of capacity, Cascadura, where we're going to have the 200 million a day of capacity. Everything around there is really the key. Those are the key areas that we want to focus on. But we also see 14 exploration prospects on there. And the key to those exploration prospects now is if we are successful, if they're gas, we can tie them into one of our 2 facilities. If they're oil, we can obviously truck them out of there. Our focus short term is going to be on the Cascadura area and Coho. And if you look at all those prospects that sit between there, whether it's Gibba, Sturgeon, Char, Pike, those are the ones that we're really going to focus on because no matter what we get there, we can bring it to the market very quickly in what we do. And then you see the exploration, I'll talk about that a little bit more as we go forward. Before I leave here though, I want to talk about Royston because it's obviously still a big structure that we have on there. The Royston well is sitting there waiting for us to get a service rig back on it to put it on the pump. I think when we saw it on logs, we were all very excited about it. It obviously has not produced as well as we would have liked it to. But we're not done there yet. We need to isolate some of the key zones right now. We have the entire wellbore open. We need to isolate some of the zones and put it on pump and see what it will do on pump. So long ways from being done, but we need to do some more work on it as we go forward. It's such a big structure. We found so much light oil on all these tests that it still looks very prospective to us. But I just want to be cautious and make sure that -- let everybody know we've got more work to do on that one before we can prove that it's economic. So our operational footprint, we talk about this, and quite frankly, this is about where can we add additional opportunities. And we think that with where we are right now with the opportunities that we have and now we are the biggest independent producer on the island. So anything that we look at doing at this point can be what I refer to as sort of tuck-ins. You don't have to add a lot of people to do some of these things. You've got all the systems in place. It becomes very efficient. And basically, you add volumes without adding all those costs associated with it. And that's really the focus and that's where we think is the advantage. We also think we've got a bit of a geological advantage right now. We think we understand the turbidites. We understand what's going on. We've got a good set of database. And we've got people that have worked up all these prospects. So pretty excited about what we've got on that point of view. As far as the summary of upcoming milestones that we've got, we want to get those license executed. They are a 6-year term. So they're not something that has to be done right away when I say near term. But in looking at that Cipero block, that's as close a lookalike as we have to the Cascadura structure that we see in the Herrera. It looks fantastic on seismic. It's got good proximity to Cascadura and Coho. So we want to move some of those things up so that as we do this development drilling program, we can slide over and do a couple of exploration wells as we go along here. We wanted to finish doing that asset exchange on Rio Claro. And that will happen when it happens, we have to kind of push that one through as we do. But that's the extension of the Cascadura pool on to the Rio Claro block. And we still -- there's no reserves booked for it. But we could easily drill a well from one of the existing pads that we have already built into that Rio Claro block. So that becomes a much higher priority as we get that done, and that's why we have it down as one of the milestones for the coming year. And then the final piece would be to get that Charuma block tied up. I really like that block. I think it's really prospective, but it is pure exploration. It is the Cretaceous. It's the same stuff that Exxon in total are drilling in Suriname and Guyana. It is wildcat exploration. But the nice thing about the Charuma block is it's only 7,000 feet to get down to the Cretaceous and take a look. So it's a fairly inexpensive way for us to look at that Cretaceous play. So that's why it's a much higher priority for us in what we're looking at doing. Yes. So the investment case, we've got significant production levels now. That 10,000 BOEs a day just changes everything. As Scott and I were talking about earlier, basically, we had $4 million of funds flow last year, we're now doing $4 million a month of funds flow. So you talk about that magnitude change. And as you ramp up these facilities, you can just kind of see how these come about. So the cash flows are now sustainable. They can sustain a really solid capital program. The fixed-price gas contracts, I mean, the nice thing about them is we can predict how much cash we've got for the capital. I know some people, when gas prices got very high, especially at the beginning of the war, thought that we were being penalized a little bit on that side. But when you look at them now, they're kind of in line with Henry Hub pricing. So there's going to be highs and lows, but basically, what that allows us to do is have a predictable capital program. But we still get oil price, less a discount, probably around 15% to 18% for our oil. So we still do get the higher oil price. We still get the benefit of that as we go forward. And Cascadura, for instance, we're producing 1,400 barrels a day of liquids right now. So it's a very, very significant number. The high-quality organic growth prospects that we have, that's just basically our drilling inventory. One of the advantages of not being able to drill a lot of wells in the last couple of years and be focused on these facilities as we've been able to work up all of those prospects and opportunities. I mentioned, we also think we can still continue to expand the base in Trinidad. We don't need to look anywhere else. We can continue to expand that base. And then the best of -- sort of underpinning it all is no matter what we find, whether it's oil and gas, we can get it to the market and we can sell it fairly quickly. ESG, this is something, I think, that really gives us a corporate license in Trinidad. We really -- we always like to think of doing the right thing. And so a lot of the things that we've done aren't economically driven. Some of them are just purely because they're the right thing to do. And when we look at our carbon reduction, and most importantly, when we look at our increased injected water in 2021 or 2022, you don't have to reinject the fluids in Trinidad, but we just know it's the right thing to do. So we've spent the money to do that. The other one that really jumps out here is the -- on the social side is the lost time incidents, none of them in the last 2.5 years. And when you think that we had over 100 work hours -- 100,000 work hours on the Cascadura facility with no lost time incidents, pretty remarkable. And if anybody ever gets a chance to see that facility, it's a very complex facility. So I really give credit to the team for focusing on that. And then we look at how much money we spent in Trinidad. Virtually everything on the construction side for those facilities was done in Trinidad. Some of the parts were sourced offshore. But it was all built with local labor on the ground and really key. We've made a bunch of proactive changes, especially at the Board level. I know some people have asked about the size of the Board. But when we look at representation of both being listed in London and Toronto and then all of our assets being in Trinidad, I think that's properly reflected when you look at the Board. And the makeup of the Board looks like it reflects the operations that we have. And then the last one, which is really important, is that all of our employees are signed off on the code of conduct. So that's it. On the financial side, it's a bit of a snapshot. I know a lot of people would like to see a little bit more in this presentation on the financials. But let's remember, it's very early at Cascadura, although things look right on schedule for what we had forecast. And what we'd like to do is come out with a sort of full-blown projections in mid-December for the 2024 year that will include capital production and cash flow. And that's our plan for going forward in what we do. But you look at this, and I really think it magnifies the changes. You look at our production at the end of June was just under 2,000 BOEs a day, and here we sit over 10,000 today. You look at funds flow from operations of $800,000. That's basically 3 days of production at Cascadura -- 4 days of production at Cascadura. It's just remarkable how this has changed in what we see. So yes, it's exciting. It's really exciting to be able to sit here and present to you a 5-year plan that includes development drilling, includes some exploration drilling. But I really think that from our point of view, this is really the end of the beginning for Touchstone. And the best stuff has gone forward. The company is at a much better place. So a lot less risk in that we can fund the exploration, we can fund the development. We have facilities in place. So it's a bit of a grownup company, and it's taken a while to get here. But we think that there's just some great opportunities for us going forward. So I appreciate you sitting through our new presentation, and hopefully, it was able to answer some questions.

Paul, thank you very much for your presentation. [Operator Instructions] Paul, we received a number of pre-submitted questions from investors, and I wanted to start off the Q&A session with these. The first one reads as follows. When do you expect to get paid for the money coming in from Cascadura? And what impact does that have on the drilling program, and how soon can we expect that to start?

Yes. That's really a key question because it's the fundamental sort of cash flow question. I mean we can all sort of talk about numbers on a daily basis, but when does the cash actually hit the bank? The schedule is that it comes in on the 25th day of the following month. So whatever we produced in September will get paid on the 25th of October. And the same thing happens with oil volumes roughly that way. And so when we talk about when we get the drilling program kicked off, Cascadura is a couple of months later than what Scott and his team had in the original plan. So we want to get that money in the end of October. Just make sure everything looks good, make sure we get some -- if we can keep the run times the way we've got them going right now, then we can kick off that program. We can make that decision after we get that cash in the end of October.

Perfect, Paul. The next question here is, can you confirm that there are no plans for replacing in the near future?

Yes, that's a great question. I think, sort of jokingly, every time somebody hears that I'm bringing -- that Scott and I are showing up in London together, they assume that we're doing a raise. And I have to admit in the past, they maybe weren't wrong in that assumption. But in this particular case, it just -- everybody can see it doesn't -- it just doesn't make sense. When you're generating that kind of cash that we are right now, it's just a matter of when we get back to drilling right, not if. And so we just want to manage things that we do that. There's just no reason to do that. I know some people had even said maybe you could take on a little bit more debt so you could accelerate the drilling program. That's not our intention. We're not looking at doing either of those. We're just going to manage that capital so that we've got it going. And the other key thing of that is we want to have a continual drilling program. I know we've talked about that before. But what we don't want to do is have this stop, start, stop, start. We really want to once we get going, keep going. There's just such great economies. So if you look at Cascadura, we can drill 3 wells off of that 1 pad, and it'd be nice to do them back to back to back. So if we wait a little bit longer to get the program going to ensure we got the cash to keep that going, that's what we're going to do.

Perfect. Given the extended Cascadura time line and disappointment with Royston, how does Touchstone plan to manage short-term finance so that the drilling campaign can progress?

Yes. I think I sort of answered that. I should have looked down at that, sorry. It -- I think that's the answer, right? The answer is pretty simple, is we're just going to wait for the cash to build up here a little bit and then we'll kick off the program.

Perfect. Just another question around Cascadura. When do you anticipate drilling -- when do you anticipate the drilling of the first 2 Cascadura development wells?

Yes, it sounds like somebody is trying to nail me down and they're -- I'm not going to get nailed down on that only because we just want to make sure everything is run -- up and running as well as we can and just make sure everything is optimized so that we can put as much cash in the bank as we can in the short term. I mean, the rig's sitting over the hole. So it's 2 weeks from when we decide to go. It's probably a couple of weeks getting the crew down there, and then 2 more weeks to get things up and running. So it's just not going to take a lot of time for us to do this. And I don't -- the whole point of giving a 5-year plan is we really -- we need to stop sort of giving dates and having people who follow us on a day by day. We've got to start delivering on the overall program. And as tough as it is for me not to give a date because that's my nature, let us do our job on our end, let us get the balance sheet propped up so that we can do a continual drilling program.

Perfect. Could you give some detail on what optimization at Coho involves and also the Cascadura deep-well optimization to produce 60 MMcf per day to 90 MMcf per day? How long will this take?

Sure. So Coho, we did a round of production log on that. Now that we produced it a little bit, and it really looks like we can isolate some of the different perfs and possibly increase production there and more importantly, lower the operating cost. So that one, we're going to do in October. That one will get done here fairly quickly. It's literally a 2-day job, so it's not a big deal. But the real optimization at Coho is the next 2 wells that we drill. And I didn't talk about that. But we have a development well at Coho that we can drill. And then we also have what I'll call a third well that goes down into the Gibba structure to the south, but it also intersects the Coho structure on the way down. So it's kind of a development well in the Coho as well as a new potential 40 or 50 Bcf pool that sits to the south at Gibba. But both of those wells can be actually drilled from the plant site. And if you were to look at our picture that we have in here at Coho and I'm just going to actually flip forward to that just real quickly. Basically, what we do is we just have 2 wellheads that are a couple of hundred feet away from the existing facility. If you look at this picture that's up here now, if you can imagine 2 wellheads on the other end of the lease from where that radio tower is. So we drill them there and then they just get tied in. That's the real optimization of Coho, is the 2 additional wells that you would bring on to bring that in. Because that well is still being choked back. It's being choked back, so it doesn't back out the shale wells on the other end of the system. So what we need to do is we've got to get more gas in there so that we can continue to run that for sure. Cascadura, right now, we've got roughly 60 million a day coming out of there, 40 million from the 1 well, 20 million from the other. We've talked about optimization. I think what we really need to do is let's -- let the wells run, let's see the pressures. Let's see where everything kind of ties out, and then we'll make a decision on whether we want to optimize as well. We also have to make the economic decision at these kind of prices that we're getting. Do you want to optimize those wells at this point? If we were getting a higher price, I think the decision would be easy. But let us work on that a little bit. There may be an opportunity for us to have that discussion if we're going to bring on additional volumes at Cascadura.

Great. Just turning to the next question. How prospective is the Cipero block?

Yes. This Cipero block has got basically 2 structures on it. It's -- we call them F1 and F2. I think that F2 structure that we see is as good as anything we've looked at. We've got great data over it. There are some lead wells in there. It's off of proven pools, whether you call it a lookalike to CAS or you look out at the Balata pool to the west, it's produced somewhere near 100 million barrels of oil. It just looks great. There's an old Exxon well that was drilled in there that we think is a key lead well. So we're really excited about that block. I think it's the most exciting block that we've got with the knowledge -- geological knowledge that we have.

Perfect. What is happening with the Charuma block bid? How likely do you think it is that the license is awarded to Touchstone?

They want -- the government came back to us and asked us to up our commitment on that block a little bit. We basically didn't commit hardly anything. I think we've now come back and said that we would look at drilling a 7,000-foot well there for them. And they seem to be receptive to that. So we'll see sort of on the final end of what that looks like, but that's the kind of commit we're looking at. So I would say I feel fairly confident on that. But like anything in Trinidad, let's just see what happens over the next couple of months.

Perfect. Is the land still going ahead? And when do you estimate that this will be complete?