(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.TO)
While the market whips around like a firehose with no one holding the nozzle, I’ve been trying to balance defensive moves (reducing non-core positions and staying cash-heavy) with sound judgment (when a stampede is coming, you best be jumping up into the closest tree). Playing defence at a time like this is important to avoid capital destruction from “beta” names, but so is patience when it comes to getting paid for being right on “alpha” calls, which brings me to Touchstone Exploration’s (TXP.TO, last at $0.63) news today.
I’m short on time, so for anyone that hasn’t been following along, just click the “blog” tab along the top of the page and scroll back through a few months of posts to get up to speed. In a nutshell, the second zone tested in the Cascadura-1 gas-condensate discovery maxed out the testing equipment (as did the test from last month in the lower zone); flowing at an average rate of 28.1 mmcf/d and 783 barrels/day of associated condensate (55-degree API) over the final 24 hours of a 49-hour testing period. Flowing pressure was 3,578 psi through at 40/64″ choke at an estimated 13% drawdown, which is as “beast-like” as the first test. Overall, the well is expected to be capable of initial production rates between 40-50 mmcf/d of gas and 1,100-1,400 barrels per day of liquids (7,750 to 9,700 boepd). At this stage of the game, the Cascadura test results put the discovery right on par with Aventura’s discovery of the nearby Carapal Ridge gas field in 2001.
Recall that TXP has an 80% interest in this discovery and are partnered with Heritage, which is the reborn version of PetroTrin, the state-owned oil company in Trinidad and Tobago. Also recall that Trinidad is short close to 400 mmcf/d of gas onshore for industrial users, so this discovery comes at a good time for all involved. Heritage has apparently been making overtures toward being able to help with getting facilities planned, approved, funded, and built, (presumably in exchange for some kind of offtake for the gas molecules?) and I think all of that can happen relatively quickly given that the discovery is just 3 kilometres from pipe in a gas-starved market.
In this coronavirus-obsessed whipsaw market, I can’t say what the market does with this news, but the news could hardly be better, so I could care less about what happens in the next hour, day, week, or month. In Indiana Jones-like style, Touchstone raised the cash it needs to complete the balance of its exploration program just before the market window closed in February and it now expects to spud the Chinook-1 prospect, one kilometre south of the Cascadura-1 well in mid-Q2. Chinook-1 is targeting the same sands in a (separate) fault block adjacent to the one that hosts the Cascadura discovery.
I can’t predict what this market will do in any minute of any day right now, but I have little doubt that TXP has discovered something of value, close to infrastructure, in a market that desperately needs its product. The rest is just details. Additional exploration success at the Chinook or Royston prospects will only add more fuel to the fire, but as it stands, TXP is on track to impress based on Cascadura alone. Folks who are interested should study the history of Aventura Energy, because there’s a reason why they say that history repeats… and in the video below, CEO Paul Baay is already talking “hundreds of BCF”, which should be quantified a little further once test results and pressure data are married with geophysics in a month or two. In any other market I think the stock would already be trading at twice the price, which is where the patience part comes into play…