Touchstone Exploration Inc. (TSX, LON:TXP) has announced a summary of its 2020 year-end reserves and provides an operational update.
Our independent reserves evaluation was prepared by GLJ Ltd. with an effective date of December 31, 2020 . Highlights of our total proved, total proved plus probable and total proved plus probable plus possible reserves from the Reserves Report are provided below. All finding and development costs below include changes in future development capital. Unless otherwise stated, all financial amounts referenced herein are stated in United States dollars. Financial information contained herein is based on the Company’s unaudited results for the year ended December 31, 2020 and is subject to change. Readers are further cautioned to read the applicable advisories contained herein.
2020 Year-end Reserves Report Highlights
· Increased 3P net reserves by 236% to 100,150 Mboe, increased 2P net reserves by 194% to 64,947 Mboe and increased 1P net reserves by 189% to 34,238 Mboe from the prior year.
· In comparison to 2019, 10% discounted net present value of future net revenues (“NPV10”) on a before tax 3P basis increased by 90% to $1,002.8 million and after tax 3P NPV10 increased by 108% to $419.4 million.
· Achieved a before tax 2P NPV10 of $683.1 million, representing an increase of 72% from $397.9 million reported in 2019 and realized an annual after tax 2P NPV10 increase of 88% to $289.2 million.
· Realized before tax 1P NPV10 of $362.9 million, representing an increase of $160.7 million or 79% from the prior year and increased after tax 1P NPV10 by 95% from year-end 2019 to $163.0 million.
· Realized 1P F&D costs of $1.26 per boe, resulting in a recycle ratio 11.3 times using our unaudited annual estimated 2020 operating netback of $14.29 per boe. Touchstone’s low F&D costs are primarily attributed to our meaningful 2020 reserves growth from our Cascadura-1ST1 well discovery.
· Recognized 2P F&D costs of $0.71 per boe, resulting in a 2P recycle ratio of 20.3 times, demonstrating Touchstone’s capital efficient operations in the Ortoire block.
· FDC associated with only a portion of our internally identified drilling location inventory and low-risk recompletion projects totaled $55.9 million for 1P reserves and $83.9 million for both 2P and 3P reserves.
· The Cascadura assessment area was assigned gross working interest 1P reserves of 23,622 Mboe and gross working interest 2P reserves of 45,030 Mboe with an estimated before tax 2P NPV10 of $411.8 million.
· The Reserves Report excluded any potential reserves from the Company’s Chinook-1 and Cascadura Deep-1 wells drilled in the fourth quarter of 2020.
Paul Baay, President and Chief Executive Officer, commented:
“Our year-end 2020 reserves evaluation provides further independent confirmation of the significant opportunities that the Company has in place from our Trinidad assets. Our 1P reserves are now significantly higher than our 3P reserves at the same time last year, providing greater operational and financial certainty for investors, and exclude any potential reserves from the recently drilled Chinook-1 well or Cascadura Deep-1 wells. We have a lot to be excited about as we focus on converting our world class reserves to production during 2021 as well as expanding opportunities through additional drilling at Ortoire.”
· Tested two identified pay zones in the Chinook-1 well, with both zones encountering potential upside in the form of light sweet crude oil. One pay zone is currently being configured for an extended production test.
· Equipment has arrived in Trinidad to enable testing of the main gas bearing zones in the Cascadura Deep-1 well, where significant hydrocarbon accumulations were reported in December based on drilling and wireline logging data.
· Testing of the potential gas bearing sands in the Chinook-1 well will commence following the extended crude oil test.
· We continue to target the second quarter of 2021 for initial Ortoire gas commercialization, with final regulatory approvals for the tie-in of our Coho-1 well received and construction underway.
· Working with the National Gas Company of Trinidad and Tobago to commence regulatory applications to tie-in Cascadura and any potential Chinook production volumes, with the objective of achieving initial production prior to the end of 2021.
· The primary access road to the Royston-1 well location has been cleared, and we have commenced road resurfacing and lease building operations.
· Initiated line clearing for the 21-kilometre 2D seismic program in the Royston area.
· Expected to enter into a minimum three-year drilling services contract from a Canadian based private company to supply an ultra-heavy telescopic drilling rig to Trinidad in late 2021, which will enable us access to three drilling rigs in Trinidad capable of drilling to depths of 10,000 feet or more.
Touchstone has yet to test the targeted gas bearing zones in the Chinook-1 and Cascadura Deep-1 exploration wells due to unavoidable delays associated with third-party equipment including the natural gas testing unit. However, we are pleased to report that all required equipment has now been cleared through the various levels of government organizations in Trinidad and is expected to be on location within the next ten days.
Touchstone has tested two low resistivity zones in the Chinook-1 well. The first test interval was in the lower sub-thrust sheet, which was a previously unknown thrust-sheet where we identified 68 net feet of potential pay based on wireline logging data. During this test, the well recovered trace amounts of 41 degrees API sweet oil along with significant high pressure and high temperature water, which was indicative of encountering a fracture at the base of the formation. With the high volume of water, the zone is considered uneconomic; however, indications of light oil prove the concept of hydrocarbons in the sub-thrust sheet. Based on 3D seismic data, future development locations are anticipated to be positioned structurally up-dip by as much as 1,000 feet from the Chinook-1 well to evaluate the sub-thrust sheet in an optimal structural position. The Company has permanently abandoned this lowermost zone and completed a second zone in the Herrera formation which encountered 35 degrees API sweet oil and is currently being configured for an extended oil production test. We anticipate conducting the first natural gas test at the Cascadura Deep-1 well while the Chinook-1 well is on the extended oil production test.
James Shipka, Touchstone Exploration Chief Operating Officer, commenting on the Chinook-1 well tests, said:
“This is an encouraging start to the production testing program as it confirms the presence of hydrocarbons in the sub-thrust sheet and will allow for further up-dip drilling targets based on available 3D seismic data. The sub-thrust sheet was not one of the original Chinook-1 well targets, so the confirmation of hydrocarbons in the deep section is very positive. Although the lower zone was considered uneconomic given the high water cuts, the reservoir displayed potential as fluid flowed to surface at over 2,200 bbls/d. Future targets structurally up-dip from Chinook-1 hold tremendous potential.
The second production test is also very exciting and could result in numerous development locations. The presence of oil in the intermediate section reaffirms that the hydrocarbon system in the Herrera is extensive and variable. Our extended production test will determine if this zone is commercial in Chinook-1 before we move up in the wellbore to our next test which we anticipate being a natural gas zone immediately above the oil. It is unfortunate that due to third-party issues beyond our control we have had to wait on the gas test equipment; nevertheless, valuable data has been collected in the interim period.
The multi-target project at Ortoire is still in the early stages. The oil discovery at Chinook-1 adds another layer of opportunity that we have not previously forecasted. For reference, the offsetting Barrackpore oil pool has over 60 wells that have produced approximately 18.7 million barrels, averaging 300,000 barrels per well with oil ranging from 27 to 30 degrees API.”
On January 22, 2021, the Company received approval to proceed with the construction of the Coho-1 tie-in project. Subsequent to the required initial notification period, construction operations have commenced. Touchtone is targeting initial gas production from Coho-1 in the second quarter of 2021. In conjunction with the project, we have also been working with the Natural Gas Company of Trinidad and Tobago to survey and commence regulatory applications to tie-in Cascadura and any potential Chinook production volumes, with a goal to achieve initial production prior to the end of 2021. The Company is concurrently applying for two additional surface locations at both Cascadura and Chinook which will allow for up to 16 development locations.
Royston Drilling Preparations
Touchstone is pleased to report that we have cleared the primary access road to the Royston-1 drilling location and are currently surfacing the road and performing lease preparations. The Royston well will be drilled using Well Services Rig #60 targeting a total depth of approximately 11,500 feet. The drilling rig is scheduled to move onto location early in the second quarter of 2021.
Drilling Rig Contract
Given our exploration success, the Company expects to execute a contract with a Canadian based private company to provide state of the art drilling equipment commencing in late 2021. The contractor will deploy a North American based drilling rig equipped for us to evaluate the deep targets at Royston, Cascadura and Chinook along with drilling on our legacy crude oil development properties. Pursuant to the current terms of the drilling contract, Touchstone must utilize the rig for a minimum of 120 days per year over an initial three-year term and is obligated to pay for rig mobilization costs, which are currently estimated to be approximately $1 million. This arrangement, in combination with our current drilling services provider, will give the Company access to three drilling rigs capable of drilling to depths of 10,000 feet or more on the Ortoire block as well as the Company’s legacy oil development properties.
Touchstone has initiated surveying and line clearing for our 21-kilometre 2D seismic program. The seismic information will be used for further delineation of the structure to be drilled at Royston and adjacent prospects in the Mid Miocene Herrera formation and is expected to optimize future drilling into the previously identified Cretaceous exploration target. The program is scheduled to be completed prior to July 2021.
2020 Year-end Reserves Report Summary
Touchstone’s 2020 capital program focused on exploration activities on our Ortoire property, where we drilled two gross (1.6 net) exploration wells. Similar to 2019, we conducted minimal capital development activity on our development properties, mainly performing wellbore recompletions and workover operations to arrest production declines. The Reserves Report includes those reserves associated with our legacy development properties and our Coho natural gas discovery in 2019, as well as new reserves associated with our Cascadura discovery in 2020. The Reserves Report does not include any reserves associated with our Chinook-1 and Cascadura Deep-1 wells drilled in 2020, as production testing operations were not completed prior to the effective date of the Reserves Report.
Touchstone’s year-end crude oil and natural gas reserves in Trinidad were evaluated by independent reserves evaluator, GLJ, in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserves information as required under NI 51-101 will be included in the Company’s Annual Information Form, which will be filed on SEDAR on or before March 31, 2021.