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, ORO.V, ORS.V, CHE.UN.TO, NTR.TO, TECK.B.TO, YGR.TO, ENB.TO, SDE.TO, ARX.TO, and ATU.V
I’ve been quiet lately, but it’s not for lack of interest in the market. Quite the opposite in fact. Largely though, I haven’t changed my tune. I still very much like Touchstone Exploration (TXP.TO, last at $0.86) for its onshore gas discovery in Trinidad and I’m seeing market interest really pick up there. In addition to recognizing the predictable nature of its cash flow from gas, the market is starting to come around to the range of possibilities for what this could be worth. My sense is that the market is a little wary of getting too bullish ahead of Chinook drilling results, but I don’t think we’re there yet. With Cascadura-1ST downhole pressure data pending and a resource estimate on Cascadura about a month later, longs should get a decent handle of what the “backstop” looks like on TXP before Chinook reaches total depth, but make no mistake, a lot rides on Chinook. If Chinook misses, the market will likely assume that Cascadura is a one-off and speculators will hit the exits en masse for a few days/weeks before the Cascadura Deep target comes into focus. If Chinook hits though, the stock could go parabolic as market sentiment swings to something resembling “these guys can’t miss”. It’s sure to be interesting and the days/weeks going into Chinook results could be a tense moment depending on where the share price is at the time. Personally, I think the story is well backstopped at current levels, but there’s no accounting for sentiment and this market isn’t exactly even-keeled in that department. Chinook is an alluring target because it is just a mile south of Cascadura, but it is in a different fault block and thus is an independent structure. In faulted areas like this, you are relying on the faults sealing, or your target reservoir being faulted against something impermeable to make a trap for the hydrocarbons… and all of this assumes that your geological/geophysical interpretation is accurate, which is tough to do in a complexly faulted area (never mind the actual drilling!). There is encouragement from an old Shell well that produced some oil from what are interpreted as the sought-after Herrera sands, down-dip of the Chinook-1 target, but in the same structure. In that sense, Chinook resembles Cascadura; Cascadura-1ST had also had an old Shell well in a down-dip location (in the same fault block) with hydrocarbon indications and that sure turned out okay so far. It’ll be interesting to see what the market does with TXP over the next few months. The speculative value in names like this can range from “zero” to “quite a lot”. Because there are no official resource estimates for Cascadura yet, there is an inherent speculation in the name already, but I don’t think the market is stretching too much yet on valuation based on my view of what’s on the table.