Shifting its spending from development activities into exploration appears to have paid off for Trinidad-focused oil and gas producer Touchstone Exploration Inc (LON: TXP). Production test results from the Coho-1 exploration well are better than expected, although the test was for a limited time, and the share price rose 1.75p to 13.25p.
The downside of the spending on exploration has been a decline in production and cash flow from production assets. However, the Coho-1 well in the Ortoire exploration block could eventually provide a significant boost to gas production.
The onshore well is near to wells drilled by Shell in the 1950s and Touchstone knew that there should be gas in the area. Touchstone points out that Coho-1 is the smallest prospect in the Ortoire area.
Touchstone has an 80% working interest in the Coho-1 well with the state company Heritage Petroleum owning the other 20%. Drilling commenced in August and the production testing started on 16 November.
The average natural gas rate in the final testing period at 17.5mmcf/day, which is equivalent to 2,917 barrels of oil/day. The rest of the testing has been done at restricted drawdowns. In the first eleven hours of a 24-hour stabilised flow period the average rate is 11.8mmcf/day, or 1,963 barrels of oil/day.
Touchstone’s current production is less than 2,000 barrels of oil per day.
The stabilised flow test will be completed and then the well will be shut-in for an extended pressure build-up test.
Touchstone intends to tie in the gas production from Coho-1 to an existing production facility. This well should come into production in the first half of 2020.
Results from the second well could be available in mid-December.
Gas benefits from a more favourable fiscal regime than oil in Trinidad and it will diversify the source of revenues for Touchstone.
House broker Shore Capital describes the drilling news as “a genuinely superb result” and its forecasts will be updated when the full test results are available.
The potential resources at the whole of the Ortoire exploration block had been valued at 9p a share, two-thirds of the current share price, and that estimate is likely to be increased. The rest of Touchstone is valued at 26p a share.