Post by
Proselenes on Aug 14, 2021 5:50am
Email to Paul Baay
Below is a copy of my email to Paul Baay, the CEO, sent today.
To: Paul Baay
Cc: Stacey Gundersen
Dear Paul,
I hope you are well. The world is starting on the path back to normality, its not going to be quick but its underway now and hopefully it continues.
The progress being made continues to be good and I am very happy to see the news that Royston-1 has now spudded and the loan facility has been extended to be able to draw from it until year end.
Royston-1 is a very exciting drill and fingers crossed you can get into and through the 7bc right the way down to the sub-thrust. The 7bc being never drilled into in the past will offer a lot of excitement and potential upside, and so will a poke into the sub-thrust if the drill can make it that far.
To keep you updated (although I am sure you already are), the current large "short" position being held in London continues, this being around the 9 million shares level.
This is seen on Euroclear, being the number of shares loaned from CREST. There are discussions among shareholders about whether this is a short or a hedge, suffice to say that 9 million shares have been borrowed from CREST and someone is paying a recurring fee to borrow those shares, and has sold them into the market creating the share price weakness we see.
A few shareholders have contacted me (and between them and myself this represents a few million shares of Touchstone) and asked me to write to you to express their views, which I will so do below.
This email will likely be posted on public Bulletin Boards so therefore to not distract you or burden you with having to make a reply and to avoid questions of "did he reply" - please do not reply to this email. Its not trying to teach you to suck eggs, its purely some shareholders wanting their voice heard, and asking me to do so in an email.
Their concerns are regarding this "short" position and how, whoever is behind it, may be going to try to influence the board of Touchstone, directly or indirectly via whatever influence, to accept a dilutive placing ahead with the excuse being "fast tracking 2022 exploration (and/or Royston development)".
Whilst I remain confident that Touchstone can progress to Cascadura production being on line without the need for any further dilution by issuing new shares, they have raised their concerns and so wanted these concerns aired to you, therefore I am passing this on.
The company currently has a debt facility of 20 million dollars, and there has been some talk, rightly or wrongly, that this may be extended up to 50 million US dollars, or indeed a new facility may be utilized.
Touchstone now has the 2020 year end reserves report with which to take on additional debt funding and the expectation is that a new upgraded reserves report including Cascadura-Deep-1 for the first time will be coming for 2021 year end reserves report. Pending any Rosyton-1 success this may also include Royston for the first time and on top of that, there may be more oil moved into 1P status following the 4 pending wells in the South West and any positive results from the pressure testing at Chinook-1 will add a little Cruse gas as well, not to be sniffed at, literally.
With a new improved reserves report at the end of 2021, enhanced debt funding seems the obvious non-dilutive way of advancing in 2022 until Cascadura is online and throwing off cash.
So, given the companies current proven reserves and with Cascadura production due to significantly increase the companies incoming cash flow not too long in the future, they would like to express their desire that the board of Touchstone consider the following points:
1/ Exploration be pushed back until after Cascadura is online and generating significant revenues, to H2 2022 if necessary. You cannot lose value by delaying, you can lose value by diluting and then failing with exploration spend. Therefore all focus should be on getting Cascadura online while minimizing other exploration related expenditure to avoid any unnecessary equity dilution. There is no value creation in "fast tracking" exploration. The oil or gas will remain there to be discovered, whether you drill it in March 2022 or December 2022. Its going nowhere if its there, it can wait.
2/ RBL or similar debt facility (or enhanced facility) to be put in place in Q1 2022, as and if required, to fund any development drilling and development requirements until Cascadura is online and generating those significant revenues. Can the 20 million loan facility be extended to 50 million ? With a new 2021 upgraded year end reserves report can a new 50 million facility be put in place where part of it pays back the current 20 million facility and the remainder is used to fund Royston surface facilities (if needed in the success case) and also a couple of Cascadura development wells in H1 2022 ?
3/ That the board please avoid any temptation to issue shares for cash after any Royston success, when no doubt there may be lots of people "knocking on the door" trying to offer money for new shares. Particularly someone who must get hold of 9 million shares to return them to CREST having borrowed them.
At this juncture in the companies development there is a major cashflow generative development due to be online late in H1 2022 in Cascadura, or as some people jokingly say "CashCowdura". To issue shares to fast track exploration is not creating value and would dilute value in the short term. All future exploration should wait until Cascadura is online and then be generated from cashflow. Any requirement for Royston development (eg surface facilities) again should be funded via debt.
As I said earlier, this is just their thoughts and opinions that they wanted passed on, and so I have done so.
My only personal comment would be that the current share price weakness being seen is in my view completely related to the lack of clarity on future funding given the ongoing delays and further delays to Coho and Cascadura. The short position is obviously suppressing the price and it becomes a "downwards spiral" as people will sell due to a low weak share price, which in turn creates even more weakness, creating even more selling, allowing the share price to be manipulated downwards and held low. Confidence is currently shot and that short position is making sure, at the moment, no confidence can be rebuilt. A new or enhanced credit line announced in 2022 will make everyone "breath" and be confident there is no discounted placing ahead to get cheap shares from.
On another note one thing that will not sit well with people, following Chinook, is any delay to flow testing in the event of any discovery at Royston. One hopes that testing equipment has been reserved and in the event of any success there will be an immediate move to flow testing without any delay.
Fingers crossed for Royston success ahead and stay safe and thank you for your time in reading this. Keep up the good work.
All the very best,
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