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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
With nothing but time on my hands these days, I’ve had a lot of time to think about a lot of stories; some new, some old. I got to Touchstone Exploration last night (TXP.TO, TXP.L, last at C$0.55) and realized that I really hadn’t appreciated just how asymmetric the risk-reward has become, based on some fairly simple math.
Here’s the punchline in one image that shows the impact to my view of value based on a range of outcomes for Chinook and Cascadura Deep, which I expect will be the next two wells into TXP’s Ortoire block. What follows below just explains the rationale. All numbers in my scenario analysis table would reflect gas volumes net to TXP’s net interest:
My math journey starts with Aventura in 2004, when it was bought by BG Group for C$228 million. Aventura had a similar discovery onshore Trinidad to what Touchstone has drilled at Cascadura (just to the west of TXP’s lands) and it had the well on long-term production test when BG made its bid. Digging through past filings, Aventura’s net 2P reserves at the time were 300 BCF, meaning that BG paid C$0.76/mcf for the 2P reserves. The natural gas price in Trinidad at the time was US$1.10/mcf and the CAD/US fx rates were similar to what they are today so I’m not going to worry about forex changes.
