Touchstone announces Q1 2019 results

Operating results
Through the first quarter of 2019, Touchstone did not drill any development wells as we focused on managing working capital, reducing net debt levels and preparing for our initial Ortoire exploration well.

First quarter development capital expenditures totaled $399,000 which included recompletion activities and the completion of two wells drilled in December 2018.

First quarter 2019 crude oil production averaged 2,121 bbls/d, a 37% increase relative to the 1,543 bbls/d produced in the first quarter of 2018. First quarter average daily production increased 15% from average production achieved in the fourth quarter of 2018, as the full impact of the Company’s 2018 drilling program was realized.

Production from the 2018 development drilling campaign contributed an average of approximately 692 bbls/d of incremental production in the first quarter of 2019.

Financial results
First quarter 2019 operating netback was $29.35 per barrel, representing an improvement of 11% from the $26.52 per barrel recognized in the equivalent quarter of 2018. Operating netback increased despite a 2% decrease in realized crude oil pricing, with the Company realizing an average of $57.71 per barrel in the first quarter of 2019 versus $59.12 per barrel received in the 2018 comparative quarter.

Although the first quarter 2019 average Brent reference price weakened by 6% compared to the first quarter 2018 average, Touchstone’s realized differential to Brent narrowed from 11.7% to 8.5%. Relative to the equivalent quarter of 2018, first quarter 2019 petroleum sales increased 34% to $11,015,000 based on a 37% increase in production volumes, offset by the slight decrease in realized pricing. Royalty expenses represented 26.5% of petroleum sales during the three months ended March 31, 2019 versus 28.5% in the prior year equivalent period. The decrease was a result of incremental production achieved from our 2018 drilling program which qualified for royalty incentives.

First quarter 2019 operating costs decreased 17% on a per barrel basis versus the first quarter of 2018, which was primarily attributable to increased production and minimal increases to the fixed component of operating expenses.

Touchstone generated first quarter 2019 funds flow from operations of $2,430,000 ($0.02 per share), representing an increase of $368,000 or 18% from the prior year comparative period. The variance was mainly a result of elevated operating netbacks achieved in the first quarter of 2019, partially offset by increased current income taxes.

First quarter 2019 current income taxes increased $1,327,000 from the prior year equivalent period, as increased supplemental petroleum tax was incurred based on increased production and minimal capital activity completed in 2019.

We recognized a net loss of $185,000 ($0.00 per share) in the first quarter of 2019 versus net earnings of $130,000 ($0.00 per share) in the first quarter of 2018. The increase in funds flow from operations was mainly offset by increased depreciation and depletion recorded in the 2019 period. Relative to the equivalent quarter of 2018, increased depletion was recognized based on increased production achieved in the first quarter of 2019.

In February, Touchstone raised gross proceeds of $5,013,000 (£3,800,000) by way of a placing of 31,666,667 new common shares at a price of C$0.21 (12 pence) per common share. Fees incurred from the private placement were $517,000, resulting in net proceeds of $4,496,000. We intend to use the net proceeds from the private placement to fund the first exploration well on our Ortoire property.

Touchstone exited the first quarter with a cash balance of $7,586,000, a working capital surplus of $1,963,000 and a C$15 million principal term loan balance. Attributable to limited capital expenditures and the net funds received from the private placement, Touchstone’s net debt was $10,016,000, representing a 30% decrease from $14,322,000 as of December 31, 2018. Our 2018 developmental capital investments increased both production and funds flow from operations from the prior year, as net debt to trailing twelvemonth funds flow from operations was 1.1 times as of March 31, 2019 versus 1.7 times as at December 31, 2018.

As a result of an extension executed in the first quarter of 2019, our credit facility does not require the commencement of principal payments until January 1, 2021, and we continued to be comfortably within the financial covenants as at March 31, 2019.

The Company’s near-term development plan is strategically balanced between maintaining base production levels and proceeding with exploratory activities on our Ortoire property. The Company intends to remain focused on financial discipline and cost control. Touchstone will continue to take a measured approach to 2019 developmental drilling in an effort to manage financial liquidity while focusing on our Ortoire exploration opportunity.

Ortoire exploration program
Touchstone’s Board of Directors approved the drilling of a second well on our Ortoire property. We have commenced construction of the surface location of the initial well and anticipate spudding in late June, subject to drilling rig availability. We expect to drill the second well using the same drilling rig immediately thereafter.

Touchstone has an 80% working interest in both wells and is obligated to fund the full cost of the exploration wells on behalf of Heritage Petroleum Company Limited, its 20% working interest partner.

Operations update
The Company’s April 2019 production averaged 1,789 bbls/d. In addition to natural decline, a significant portion of the monthly drop in production was due to downtime on two of the Company’s high rate flowing wells.

CO-372, which contributed  approximately 131 bbls/d in the first quarter of 2019, suffered from a tubing failure resulting in a fish being stuck in the hole. The Company has sourced the required fishing tools to recover the tubing and bottom hole assembly and anticipates moving a service rig to the location within the next two weeks.

PS-605 experienced a packer failure which allowed water from a previously suspended horizon to enter the wellbore. The well produced approximately 55 bbls/d in the first quarter of 2019. A new packer will be run to isolate the lower zone of the well, and the Company expects that production will be restored thereafter. Additionally, the  Company’s key service rig provider currently has two service rigs down for repairs which have led to short-term backup of rig work.

Touchstone currently has 15 lower rate workovers awaiting service and has recently brought two additional rigs into operations to facilitate completion. We anticipate returning to a production rate in excess of 2,000 bbls/d within the next four to six
weeks.