Test provides further boost for Touchstone

Test results for the Cascadura gas discovery continue to be impressive. Broker Shore Capital has yet to upgrade its valuation for Trinidad-focused oil and gas producer Touchstone Exploration Inc (LON: TXP), but it does anticipate an upgrade soon.

An average flow rate of 28mmcfd of gas was achieved over 24 hours and there were 780bopd of associated liquids. That is equivalent to 5,470boepd, which is higher than at the previous test zone.

Touchstone believes that the daily production rate for Cascadura could be between 7,750-9,700 barrels of oil equivalent. Probably three-quarters of the production will be in the form of gas.

There is good demand for gas in Trinidad and the production could come on stream relatively quickly. The Coho-1 gas well should be up and running by the autumn.

Touchstone is the operator of Cascadura-1ST1, which is on the Ortoire onshore exploration block, where Touchstone has a 80% working interest with the rest owed by the Trinidad state oil company Heritage Petroleum.

There are plans for drilling the Chinook-1 well by the middle of the second quarter.

Reserves

Earlier this month, Touchstone announced that 1P reserves increased by 6% to 11,840 Mboe and 2P reserves were 14% higher at 22,056 Mboe. The 10% discounted NPV of the 1P reserves was $83.7m.

However, the valuations were based on Brent spot crude price of $67/barrel and a WTI price of $61/barrel for 2020, followed by steady rises in the subsequent years.

Those prices are a long way off in the short-term. Whether this will have a longer-term effect will depend on whether the dispute between Russia and Saudi Arabia continues.

Valuation

The current risked NAV estimate from Shore is 48p a share. Even with the volatile oil price outside of Trinidad, this is likely to be raised.

The share price has fallen back from its high, partly due to the oil market malaise and also due to the $11.6m (£9m) fundraising at 38p a share in order to fund the Ortoire exploration programme. This was higher than the minimum of $9.1m sought by management.

Any dilutive effect on the NAV will have to be taken into account. The share price went above 39p early in the day but fell back to 34p. This still provides some upside even before any potential further exploration news.