Touchstone makes fourth discovery

The good news continues to come from Trinidad-focused oil and gas producer Touchstone Exploration Inc (LON: TXP) with a further gas discovery at Cascadura Deep-1. finnCap has upgraded its share price target by 58% to 188p.

Touchstone has made a discovery with every well that it has drilled on the Ortoire block so far. The latest well is the fourth and it is apparently the best. Deeper drilling is required to firm up the potential, though, which should happen in the first quarter of 2021. This find appears to be an extension of the geology found in the Cascadura 1ST-1 well.

Further drilling is likely to focus on tieing in the different wells together and this will help to accelerate the production growth.

Later this month, there should be news of production testing at Chinook-1.

Figures

The focus on exploration means that 2020 revenues are likely to be $14.3m and there will be a small cash outflow from operations. That will change in 2021 as some of the new discoveries start production. Revenues of $24.2m are expected with cash generation of $11.5m.

That cash will contribute to further drilling and should leave Touchstone with net cash at the end of 2021. Cash generation should accelerate in subsequent years.

Valuation

The Cascadura Deep-1 discovery is thought to be worth 40p a share – based on an estimated 49mmboe resource. There is no estimate for any additional exploration on the Ortoire block. Given the success of previous wells there could be significant upgrades over the coming year. There are many more potential targets.

The share price has increased to 125.5p – compared to 14.25p when I wrote about Touchstone in September 2019. That is still a one-third discount to the finnCap target price and there is potential for further upgrades in that figure.