TOUCHSTONE ANNOUNCES YEAR-END 2020 RESULTS - Mar 26 NR Touchstone loses $11.03-million (U.S.) in 2020
2021-03-26 08:52 AT - News Release
Mr. Paul Baay reports
TOUCHSTONE ANNOUNCES YEAR-END 2020 RESULTS
Touchstone Exploration Inc. has released its operating and financial results for the three months and year ended Dec. 31, 2020. Selected information is outlined below and should be read in conjunction with Touchstone's Dec. 31, 2020, audited consolidated financial statements, the related management's discussion and analysis, and annual information form, all of which will be available under the company's profile on SEDAR and the company's website. Unless otherwise stated, all financial amounts herein are rounded to thousands of U.S. dollars.
2020 highlights:
- Achieved annual crude oil sales of 1,392 barrels per day (bbl/d), a 24-per-cent decrease relative to the 1,825 barrels per day produced in 2019. As expected and consistent with 2019, the company's crude oil production has reduced due to the continuing impact of natural declines, reflecting a strategic focus on the company's Ortoire exploration program, which has limited development capital investment;
- Executed a high-impact, incident-free $17,861,000 exploration program, primarily focused on drilling two gross (1.6 net) wells;
- Despite limited capital and operational development asset investment and considerably lower crude oil pricing, generated funds flow from operations of $263,000 (2019 -- $6.84-million) and an operating netback of $14.49 per barrel (2019 -- $26.61);
- Continued to focus on discretionary cost reductions, with operating costs on a per-barrel basis decreasing by 12 per cent and general and administration expenses declining by 6 per cent relative to 2019;
- Recognized a net loss of $11.03-million (six cents per share) compared with a net loss of $5.62-million (four cents per share) in 2019, driven by $11,418,000 in net impairment losses recorded in the year predominantly based on lower forecasted crude oil pricing;
- Established a $20-million term loan with a Trinidad-based financial institution and successfully accessed capital markets to continue the company's Ortoire exploration program, raising total net proceeds of $39.2-million from two oversubscribed equity financings;
- Maintained financial flexibility, exiting the year with cash of $24,281,000, a working capital balance of $12,933,000 and $7.5-million drawn on the company's $20-million term credit facility, resulting in a net surplus of $5,433,000;
- Business continuity plans remain effective across the company's locations in response to COVID-19 with minimal health and safety impacts or disruptions to production.
Paul Baay, president and chief executive officer, commented: "Two thousand twenty presented significant challenges to the wider oil and gas industry due to the impact of COVID-19 on working operations and the volatile nature of global oil prices. It is against that backdrop that I am delighted to report another year of significant progress at Touchstone in which we have enhanced our financial position significantly, encountered major natural gas discoveries as well as signed a historic long-term natural gas sales agreement with the National Gas Company of Trinidad and Tobago.
"I would like to thank the entire team at Touchstone for their dedication, perseverance and flexibility during this difficult period, which has enabled us to achieve such success. As a result of their hard work, the company is very well positioned for another year of growth as we move forward with our exploration, development and production program at Ortoire and across the wider portfolio."
2020 annual summary and outlook
The resilience and quality of the company's employees and asset base were demonstrated throughout an extremely challenging operational and financial period in 2020. The impacts on the company's business due to COVID-19 and the associated volatility in crude oil prices forced prompt decisions to preserve financial flexibility and protect the health of the company's employees and stakeholders. The company remains focused on protecting the health of its employees and communities while ensuring a decisive response for its investors. The company will continue to follow the advice of public health officials in supporting its employees, their families and the company's business partners.
Despite these challenges, Touchstone continued with its focus on improving financial liquidity, capturing cost savings and increasing the long-term value of the company's core assets. The company managed its business prudently during the year, progressing with its Ortoire exploration program and maintaining its base production while continuing safe and reliable operations.
The enhanced liquidity provided from the company's debt refinancing and its 2020 equity financings are expected to allow the company to finance its exploration program in 2021, with a core focus on drilling the company's final work commitment exploration well (Royston-1), completing the company's 2-D seismic program, testing the company's two exploration wells drilled in 2020, and bringing the company's Coho-1 and Cascadura-1ST1 discoveries into production in 2021.
The company's primary objective remains to bring its two natural gas exploration discoveries at Ortoire into production in 2021. Additionally, production testing operations are continuing at the company's Chinook-1 and Cascadura Deep-1 prospects, and the company anticipates drilling the company's Royston-1 location in the second quarter of 2021. As the current economic and health related challenges persist, the company will continue to adapt its business operations and capital programs to ensure health and safety and enhance long-term shareholder value.
<snipped> FINANCIAL AND OPERATING RESULTS SUMMARY
Annual operating results
Throughout 2020, the company conducted minimal capital development activity and continued to allocate capital to exploration activities on its Ortoire property. As a result, crude oil production during the fourth quarter averaged 1,274 bbl/d, a 25-per-cent decrease relative to the 1,690 bbl/d produced in the fourth quarter of 2019 based on the continuing impact of natural declines. Further, commencing in March, 2020, the company deliberately reduced discretionary operating expenditures in response to lower crude oil pricing, focusing on performing well interventions on those deemed high priority. Accordingly, annual 2020 crude oil production averaged 1,392 bbl/d, representing a decrease of 24 per cent from crude oil production delivered in 2019. The company invested $709,000 in development activities in 2020, which mainly consisted of recompletion activities on legacy wellbores and upgrades to the company's oil field service equipment to maintain base production levels.
The company remained heavily focused on its Ortoire exploration activities in 2020, investing $17,861,000 in exploration assets during the year. In 2020, the company drilled two gross exploration wells (1.6 net) and incurred production testing costs on the Cascadura-1ST1 well drilled in December, 2019. The Chinook-1 exploration well reached its total depth on Oct. 13, 2020, and the company concluded drilling operations on Cascadura Deep-1 on Dec. 19, 2020.
Annual financial results
The company reported funds flow from operations of $263,000 in 2020 versus $6.84-million generated in the prior year. Petroleum sales recognized in 2020 decreased by 49 per cent or $19,062,000 from 2019, reflecting a 34-per-cent reduction in the company's realized sales pricing as a result of the COVID-19 pandemic and a 24-per-cent decline in crude oil production volumes from limited capital and operational investment. The reduction in 2020 petroleum sales resulted in a 50-per-cent decline in royalty expenses compared with 2019. In response to the drastic decrease in realized crude oil pricing, the company instituted cost-saving initiatives, decreasing annual operating expenses by 33 per cent and 12 per cent on an absolute and per barrel basis from 2019, respectively. As a result, the company's annual 2020 operating netback was $14.49 per barrel versus $26.61 per barrel reported in 2019. In addition, the company reduced annual 2020 general and administration expenses by 6 per cent in comparison with 2019. Finance expenses increased by $3,419,000 from 2019, as non-cash finance expenses increased by $1,734,000 predominantly as a result of the company's term loan refinancing. Further, Touchstone recognized a one-time $1,286,000 income tax interest reversal recorded in net finance expenses in the prior year. Relative to 2019, current income tax expense decreased by $5,094,000 or 95 per cent, reflective of $4,914,000 in supplemental petroleum taxes incurred in the prior year from higher realized crude oil pricing.
The company recorded a net loss of $11.03-million (six cents per share) in 2020 compared with a net loss of $5.62-million (four cents per share) in 2019. Touchstone recognized net impairment losses of $11,418,000 in 2020 compared with impairment losses of $7.96-million recorded in 2019. Two thousand twenty impairments were a result of $795,000 of licence costs on non-core exploration assets and $10,623,000 in net property and equipment impairments. Impairment losses of $19,215,000 were recognized in the first quarter of 2020 based on the precipitous decline in forward crude oil pricing, while net property and equipment impairment recoveries of $8,592,000 were recorded in the fourth quarter of 2020 based on the company's updated reserve report and a recovery of forward oil prices as at Dec. 31, 2020. The net impairment losses were minimized by their corresponding effect on deferred taxes, as a recovery of $6,273,000 was recognized during the year ended Dec. 31, 2020 (2019 -- $1,813,000).
On the basis of the successful results from the first three Ortoire exploration wells, the company undertook a private placement that closed on Nov. 12, 2020, in order to support the completion of the initial phase of exploration work on the Ortoire block, raising net proceeds of $28,386,000. Touchstone exited the year with a cash balance of $24,281,000, a working capital surplus of $12,933,000 and $7.5-million drawn on the company's term credit facility resulting in a net surplus position of $5,433,000. The company's near-term liquidity is augmented by $12.5-million of undrawn credit capacity.
Touchstone Exploration Inc.
Touchstone Exploration Inc. is a Calgary, Alberta based company engaged in the business of acquiring interests in petroleum and natural gas rights and the exploration, development, production and sale of petroleum and natural gas. Touchstone is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Stock Exchange and the AIM market of the London Stock Exchange under the symbol "TXP".
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