A big natural gas discovery onshore Trinidad has transformed Touchstone Exploration’s (TXP:AIM) prospects and investors should buy ahead of multiple incremental catalysts leading up to a step change in group production.

This investment is not without risk. Sentiment towards the wider sector is patchy and the shares are already up materially since its Cascadura find was announced.

However, we think the scale of the opportunity balances out these risks. Touchstone’s existing production of around 1,500 barrels of oil equivalent per day could increase to more than 10,000 boepd as Cascadura, mainly gas with some associated liquids, is brought on stream.

The apparent scale of Cascadura, located on the Touchstone’s Ortoire block, caused FinnCap to increase its forecast of the group’s peak production potential from 13,000 boepd to 17,000 boepd.

Rising output should begin to feed through in 2021 and could eventually enable the company to reward shareholders with a dividend.

Gas is in demand in Trinidad, whose large industrial sector belies the cliché of a Caribbean island.

An upcoming share price catalyst for Touchstone is an agreement on gas sales with the state-owned operators National Gas Company of Trinidad and Tobago and Heritage Petroleum which should be announced before the end of the summer.

The group’s current production is crude oil and selling a lot more gas at an agreed price would reduce its exposure to volatile
oil markets.

Other near-term catalysts include a third-party reserves report on Cascadura and the commencement of drilling on a second prospect on Ortoire – Chinook. Both bits of news are expected in July.

Longer term the company looks set to drill significantly more wells on Ortoire amid attempts to fully delineate the block’s potential. Up to 20 potential targets have been identified. This includes further drilling on Cascadura itself and a well on highest risk and highest reward prospect Royston in the first half of 2021.

Chief executive Paul Baay tells Shares there are no plans for an equity raise to finance this activity, with the company planning to pay for future drilling from existing funds and anticipated cash flow. On 16 June the company agreed a US$20 million loan with Trinidad’s Republic Bank.

In the words of broker Shore Capital ‘this is a very positive development which makes considerable sense for the company, replacing its existing C$20 million credit facility on favourable terms and also providing important financial flexibility, enabling Touchstone to confidently press on with its Ortoire exploration activities’.

‹ Previous2020-06-25Next ›