The Energy Report - Thu, Jan 24, 2019

'Large Exploration Upside' Highlighted at Oil & Gas Company's Asset

A Mackie Research Capital Corp. report discussed conclusions presented in a recent resource update.


In a Jan. 17 research note, analyst Bill Newman reported that "large resource upside [was] confirmed" on Touchstone Exploration Inc.'s (TXP:TSX) Ortoire block in Trinidad through the just released NI 51-101 compliant resource update. The report "highlights the potential to more than double the value of the company," he added.

Newman relayed the specifics of the identified resource. Prepared by GLJ Petroleum Consultants Ltd., the report determined there exists, in the three exploration prospects on Ortoire, "a net unrisked P50 contingent and prospective recoverable resource of 21.8 million barrels of oil equivalent (21.8 MMboe) with a discounted value (NPV10%) of $255.1 million ($1.98 per share)."

As for the net unrisked contingent recoverable resource alone, the report outlines a best case P50 of 3 MMboe with an NPV10% value of $34.4 million, or $0.27 per share. GLJ calculated a 100% chance of discovery, given Ortoire is in a producing basin near other producing fields and service equipment is easily accessible. GLJ rated the chance of commercialization at 95%.

Regarding the net unrisked prospective recoverable resource, the report presents a best case P50 of 18.8 MMboe with an NPV10% value of $219.7 million, or $1.70 per share. GLJ gave it a "relatively high" average discovery chance of 35.7% as several large discoveries surround the Ortoire block.

Newman concluded the resource report "confirms substantial reserves and production upside potential of the first three prospects on Touchstone's large Ortoire block, which directly offsets its current producing development blocks."

Touchstone is expected to commence exploration on Ortoire, "which provides investors with high-impact upside potential," Newman indicated. At the same time, the company will keep expanding its production base through continued exploration of its 'low-risk locations on its development blocks."

Mackie Research has a Speculative Buy and a CA$0.50 target price on Touchstone. The stock is currently trading at around CA$0.22 per share—at a "large discount to its core net asset value," which Mackie estimates is about $1.11 per fully diluted share, or $143.7 million, Newman pointed out.

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