Touchstone Exploration Inc (LON:TXP) Chief Executive Officer Paul Baay caught up with DirectorsTalk to discuss their recent acquisition, capital raise, and their implications for future growth.
Q1: Paul, you’ve recently completed the acquisition of the central block from Shell for $23 million. What were the key attractions for doing the deal?
A1: So, this was a deal we announced back in December, so it’s taken us a little bit time to close it, but we closed it last week.
Really, the significance is that it continues to build on that portfolio of assets that we have onshore in Trinidad, and this one really is probably the highest quality asset we have in the sense that it’s got a bunch of attributes that are unique in Trinidad. It comes with about 2,000 BOEs a day of production so significant production, significant cash flow right out of the gate as it’s an up and running plant and it sells the gas into the LNG market, which is something new for us. We’ve been selling into what they call the domestic or the petrochemical business, so this gives us an opportunity to sell into the higher price market.
The independent engineering evaluation puts this asset at about $85 million, and our $23 million dollar purchase price, I think, looks pretty attractive when you look for it on that basis.
Q2: You mentioned that the central block will further increase your access to LNG export but what does that do for the price that Touchstone Exploration can achieve for your gas production?
A2: That LNG market or the liquid natural gas market is the worldwide market for distributing natural gas and what we find is that the domestic market is that you’re a little bit trapped. Number one, because it’s an island but that methanol ammonia fertiliser market is a little more driven by US pricing.
So, if you look at the domestic price we get now, it’s about 250 MCF for a million cubic feet for our gas that we get and although we haven’t seen the first LNG shipment under this new arrangement, LNG prices around the world are in that right now are probably in that $9-12 range. Now, that’s before you pay for some processing and transportation. I think you see the magnitude of the difference between the two so that it opens up a worldwide market instead of us being captivated by the Trinidad petrochemical market.
Q3: Now, Touchstone Exploration recently raised $20 million for the 2025 work programme, can you talk us through that decision and what the proceeds will be used for?
A3: Anytime you do one of these acquisitions, although we were able to borrow enough money from the bank to pay for the acquisition, you don’t want to over lever the balance sheet, and really, we’ve got a big active programme here. We’ve got wells to drill on the asset that we bought, plus the wells that we have to drill on our existing fields at Cascadura and Coho, and we just wanted to make sure that we were properly funded in what we were doing. We’re going to be able to take full advantage of all these new opportunities and that was the real reason for doing it.
I know some people look at these equity raises being diluted, but the advantage of doing it now is we’re bringing along 2,000 BOEs a day of production at a higher price so really on a per share basis, this isn’t a diluted transaction for us. It just seems like it was the opportune time.
We also had the opportunity to bring in a couple of fairly strategic shareholders. We’ve been looking at increasing our institutional holding on our shareholder base, so we’re looking forward to that. We’ve been talking about wanting to get to that 8,000 to 9,000 BOE a day production rate this year and really, we needed that capital to make sure we had the money to execute the capital programme.
Q4: It looks like an exciting year ahead but what does your longer-term strategy look like?
A4: I think that’s the thing that we can really start to focus on now. We’ve got all the building blocks; we control all the gas plants onshore in Trinidad and I think we’re going to start to look beyond that 8,000 to 9,000 BOEs a day range and figure out how we can maximise all these plants.
When you look at these facilities, we’ve got between 50,000 and 70,000 barrels of oil equivalent a day of capacity so what we now have to do is just finding oil and gas behind those facilities by drilling the wells and tying them in. That’s obviously not going to happen quickly in what we’re doing but I think what it does is it shows the opportunity that we’ve now built onshore. It’s taken a lot longer than we than we had hoped for, but I couldn’t have ever imagined of putting all the pieces of the puzzle together like we have here.
It’s really a unique opportunity for us.
