Touchstone Exploration (LON:TXP) has provided an updated reserves report for the end of FY24, reaffirming its revised production outlook for the Cascadura gas field. The company remains well-positioned for long-term growth despite a recalibrated 2P reserves estimate.
Shore Capital’s updated fair value estimate of 36p per share reflects the company’s tangible net asset value (NAV), aligning with the newly reported reserves data. Analyst James Hosie explains, “The potential for Touchstone to deliver a multi-year production and cash flow growth profile is unchanged, while future activity could reverse the revision in 2P reserves.”
Reserves Update – A Balanced Outlook
Touchstone reported 50mmboe of 2P reserves, with approximately 61% in natural gas, from its onshore Trinidad portfolio. Notably, this includes the first recognition of light oil at Cascadura and upward revisions to other oil assets. However, the overall reserves have declined due to revised natural gas and associated liquids estimates at Cascadura.
The reserves reduction follows the adjusted production profiles outlined in the company’s December 2024 Capital Markets Day. As a result, Shore Capital views this latest reserves update as confirmatory rather than unexpected. “Indeed, our prior valuation and estimates had already assumed a c.23% reduction based on the revised production outlook and investment plans at Cascadura,” states Hosie.
Strategic Growth and Potential Upside
Despite the reserves recalibration, Touchstone’s management has highlighted key growth catalysts. These include potential new wells in Rio Claro, believed to be an eastward extension of Cascadura, and the anticipated completion of its $23 million acquisition of Shell Trinidad Central Block Ltd (STCBL) in Q2 FY25. This acquisition is expected to bolster Touchstone’s reserve base and drive future value.
Shore Capital also notes that upcoming financial developments, such as negotiations to increase debt capacity by $10 million, could provide the necessary flexibility to solidify FY25 capital spending plans.
Valuation – Discount to Tangible NAV
Following the reserves update, Shore Capital has adjusted its valuation model, resulting in a 9% reduction in Tangible NAV to 36p per share. However, with Touchstone’s shares trading at a 35% discount to Tangible NAV, the firm continues to see significant upside potential. “We continue to see significant upside from delivery of the strategy that is focused on establishing Touchstone as a sustainable, full-cycle oil & gas business in Trinidad,” says Hosie.
Upcoming Catalysts and Market Position
Investors will be closely watching Touchstone’s Q4 FY24 results on 20 March, which will provide further insights into its operational progress. The completion of the STCBL acquisition and potential capital investment updates are also expected to drive sentiment.
Final Thoughts
Touchstone Exploration remains on track to execute its long-term growth strategy despite a revised reserves outlook. With ongoing developments in exploration, acquisitions, and capital investment, the company is well-positioned to strengthen its production and cash flow profile in the years ahead.
