Trinidad-focused oil and gas producer Touchstone Exploration Inc (LON: TXP) is raising at least $9.1m (£7m) at 38p a share in order to invest in the Ortoire exploration programme.
This is no surprise. The increased share price makes it sensible for the company to take advantage of a less dilutive share issue than in the past. In February 2019, £3.8m was raised at 12p a share.
The amount raised could be increased if there is enough demand.
The cash will finance a well at the Chinook prospect, which is on the geographical trend of the existing discoveries, and one at the Royston prospect. There will also be well recompletions at producing sites in order to increase existing production and cash flow to help finance further exploration.
The shares had been trading as high as 56p prior to the announcement, although they fell back afterwards to end at 44p. that is still more than double the high on AIM for the share price prior to this year.
Prior to this week, the placing price would have looked a full one and it is important to keep that in mind. The rise over the past couple of days appears to have been froth.
There has been some profit-taking in the past few weeks. David and Monique Newlands have been trimming their stake ahead of the placing and their stake is below 3%. Norway-based North Energy has cut its stake from 9.75% to 8.86%.
Earlier this month, Shore Capital increased its risked valuation for Touchstone from 40p a share to 48p a share. That was based on the first stage of testing of the Cascadura well. (Of course, as house broker Shore is the one placing the new shares).
The rate during the test was more than 5,000 barrels of oil equivalent per day. There will be a pressure build up test. There should be further news in March. The Coho-1 well should be in production by June.
Shore admits the valuation estimate is “rudimentary”, but it believes that it is a cautious figure with upside potential.
There is still plenty of upside for the exploration activity. Cash flow will build up – as long as the oil price holds up.
Demand for shares may be satisfied in the short-term by the latest fundraising and there may be opportunities to buy at below the current market price.