(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long TXP.)
Touchstone Exploration (TXP.TO, last at $0.47)
I’ve casually followed Touchstone for years and have never really cared to own it until recently. It has always seemed “cheap” based on its cash flow and reserves from onshore oil production in Trinidad, but there was never anything to get me interested. A while back, the company announced a gas discovery at its Coho prospect which eventually yielded test data suggesting that the Coho-1 well was capable of producing at an initial rate of 10-12 mmcf/d. I found that intriguing, but it didn’t pull me over the fence.
Then, during the week before Christmas last year, TXP delivered a present to its shareholders when it announced that it had encountered 1,037 feet of oil pay in its Cascadura-1 exploration well. A headline citing a thousand feet of oil pay is sure to turn heads and it certainly caught my attention. Testing was pending, but it seemed that TXP had an oil discovery on its hands. Fast forward to yesterday and TXP announced that it would need to move in different equipment for testing because it had encountered high volumes and pressures of gas. Yes gas. It’s odd that they thought it was oil pay to start with if it is indeed a gas discovery, but I’ve seen that happen before. That gas may or may not come with condensate, but that’s why you need to test wells in this business. I haven’t done volumetrics on the target, nor is there really enough information to do so, but this will be a well to watch if the CEO’s interview from yesterday isn’t just a puff piece (see below). He seems to be suggesting that this could be quite material for the company, but the proof will be in the test results. Given the market cap and the fact that Coho-1 (the “known” discovery) can be tied in and monetized quickly, I would argue this falls into the skewed risk-reward category as the market cap really hasn’t moved up enough to price in a material discovery since this all began. I guess time will tell, but in the meantime, have a watch of this video and see what you think. I’m not sure what to make of it, so I’m long a modest position on a somewhat blind bet. The wait won’t be too long as test results are expected in early February. Roll them dice.