2018 YEAR-END RESERVES
2018 YEAR-END RESERVES
Calgary, Alberta - March 7, 2019 - Touchstone Exploration Inc. ("Touchstone" or the "Company") (TSX / LSE: TXP) announces the results of its independent reserves evaluation as at December 31, 2018. Reserve numbers provided herein were derived from an independent reserves report (the "Reserves Report") prepared by GLJ Petroleum Consultants Ltd. ("GLJ") effective December 31, 2018.
All currency amounts are in United States dollars ("US$") unless otherwise stated.
The financial information contained herein is based on the Company's unaudited expected results for the year ended December 31, 2018 and is subject to change.
2018 Year-end Reserve Report Highlights
· Increased proved ("1P") reserves by 5% to 11,222 Mbbl and increased proved plus probable ("2P") reserves by 4% to 19,275 Mbbl from the prior year.
· Replaced 2018 annual production by 178% on a 1P reserves basis and 218% on a 2P reserves basis.
· Realized an after tax 1P 10% discounted net present value of future net revenues ("NPV") of $79.8 million, an increase of $12.1 million or 18% from the prior year.
· Achieved an after tax 2P 10% discounted NPV of $145.4 million, representing an increase of 14% from $127.4 million in 2017.
· Future development costs ("FDC") associated with only a portion of our internally identified drilling location inventory and portfolio of low risk recompletion projects totaled $46.0 million for 1P reserves and $68.6 million for 2P reserves.
· Realized 1P finding, development and acquisition ("FD&A") costs of $12.71 per barrel, resulting in a 2.2 times recycle ratio using our unaudited annual 2018 operating netback of $27.34 per barrel.
· Achieved 2P FD&A costs of $10.85 per barrel. Using the unaudited annual 2018 estimated operating netback, the 2P FD&A recycle ratio was 2.5 times.
· The Reserves Report included only those reserves associated with our development properties and did not include our previously announced estimated resources associated with our Ortoire exploration block prospects.
James Shipka, Chief Operating Officer, commented:
"The updated reserves evaluation validated our strong base production and reflected the results of our successful 2018 development drilling campaign. Solid 2018 reserves growth was achieved from our low decline production base and drilling success. Capital efficiencies seen in our low finding and development costs and strong recycle ratios support our belief in organic growth through the drill bit complemented by low cost recompletions."
2018 Year-end Reserves Report Summary
Touchstone's year-end crude reserves in Trinidad were evaluated by independent reserves evaluator GLJ in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Additional reserves information as required under NI 51-101 will be included in the Company's Annual Information Form, which will be filed on SEDAR on or before March 31, 2019. The reserve estimates set forth below are based upon GLJ's Reserve Report dated March 6, 2019 with an effective date of December 31, 2018. All values in this announcement are based on GLJ's forecast prices and estimates of future operating and capital costs as at December 31, 2018. In certain tables set forth below, the columns may not add due to rounding.
Summary of Gross Oil Reserves as of December 31, 2018 by Product Type(1),(2)
|
Reserves Category |
|
|
Light and Medium Oil (Mbbl) |
Heavy Oil (Mbbl) |
Total Oil Equivalent (Mbbl) |
|
|
|
|
|
|
|
|
Proved |
|
|
|
|
|
|
Developed Producing |
|
|
4,719 |
461 |
5,180 |
|
Developed Non-Producing |
|
|
1,482 |
217 |
1,699 |
|
Undeveloped |
|
|
3,785 |
558 |
4,343 |
|
Total Proved |
|
|
9,986 |
1,236 |
11,222 |
|
|
|
|
|
|
|
|
Probable |
|
|
7,298 |
755 |
8,053 |
|
Total Proved plus Probable |
|
|
17,284 |
1,991 |
19,275 |
|
|
|
|
|
|
|
|
Possible |
|
|
5,564 |
611 |
6,265 |
|
Total Proved plus Probable plus Possible |
|
22,938 |
2,602 |
25,540 |
|
Notes:
(1) Gross Reserves are the Company's working interest share of the remaining reserves before deduction of any royalties.
(2) See "Advisories: Reserve Advisory".
Summary of Net Present Values of Future Net Revenue as of December 31, 2018(1),(2)
|
Reserves Category |
Net Present Values of Future Net Revenues Before Income Taxes Discounted at (% per year) (US$000's) |
||||
|
0% |
5% |
10% |
15% |
20% |
|
|
|
|
|
|
|
|
|
Proved |
|
|
|
|
|
|
Developed Producing |
106,422 |
76,788 |
62,572 |
53,898 |
47,864 |
|
Developed Non-Producing |
81,704 |
59,930 |
49,142 |
41,968 |
36,659 |
|
Undeveloped |
142,421 |
106,112 |
81,816 |
64,791 |
52,406 |
|
Total Proved |
330,548 |
242,830 |
193,530 |
160,657 |
136,929 |
|
|
|
|
|
|
|
|
Probable |
368,384 |
248,422 |
184,476 |
144,523 |
117,239 |
|
Total Proved plus Probable |
698,932 |
491,252 |
378,006 |
305,180 |
254,168 |
|
|
|
|
|
|
|
|
Possible |
301,629 |
175,091 |
122,301 |
93,724 |
75,742 |
|
Total Proved plus Probable plus Possible |
1,000,561 |
666,343 |
500,307 |
398,904 |
329,910 |
|
Reserves Category |
Net Present Values of Future Net Revenues After Income Taxes(3) Discounted at (% per year) (US$000's) |
||||
|
0% |
5% |
10% |
15% |
20% |
|
|
|
|
|
|
|
|
|
Proved |
|
|
|
|
|
|
Developed Producing |
47,110 |
38,230 |
33,522 |
30,365 |
27,980 |
|
Developed Non-Producing |
28,537 |
21,578 |
18,082 |
15,759 |
14,044 |
|
Undeveloped |
50,922 |
37,286 |
28,153 |
21,742 |
17,078 |
|
Total Proved |
126,568 |
97,093 |
79,757 |
67,866 |
59,102 |
|
|
|
|
|
|
|
|
Probable |
129,216 |
88,061 |
65,620 |
51,406 |
41,636 |
|
Total Proved plus Probable |
255,784 |
185,154 |
145,378 |
119,272 |
100,739 |
|
|
|
|
|
|
|
|
Possible |
101,777 |
61,598 |
43,764 |
33,833 |
27,514 |
|
Total Proved plus Probable plus Possible |
357,561 |
246,752 |
189,142 |
153,105 |
128,253 |
Notes:
(1) Based on GLJ's December 31, 2018 escalated price forecast. See "Summary of Pricing and Inflation Assumptions".
(2) See "Advisories: Reserve Advisory".
(3) Income taxes include all resource income, appropriate income tax calculations per current Republic of Trinidad and Tobago tax regulations and estimated December 31, 2018 consolidated tax pools and non-capital losses.
Summary of Pricing and Inflation Assumptions
The following table sets forth the benchmark reference prices and inflation rates reflected in the Reserves Report.
|
Forecast Year |
NYMEX WTI at Cushing, Oklahoma (US$/bbl)(1) |
Brent Blend FOB North Sea (US$/bbl)(1) |
Inflation Rates (%/year)(2) |
|
|
|
|
|
|
2019 |
56.25 |
63.25 |
0.0 |
|
2020 |
63.00 |
68.50 |
2.0 |
|
2021 |
67.00 |
71.25 |
2.0 |
|
2022 |
70.00 |
73.00 |
2.0 |
|
2023 |
72.50 |
75.50 |
2.0 |
|
2024 |
75.00 |
78.00 |
2.0 |
|
2025 |
77.50 |
80.50 |
2.0 |
|
2026 |
80.41 |
83.41 |
2.0 |
|
2027 |
82.02 |
85.02 |
2.0 |
|
2028 |
83.66 |
86.66 |
2.0 |
|
Thereafter |
+2.0% / year |
+2.0% / year |
2.0 |
|
|
|
|
|
Notes:
(1) This summary table identifies benchmark reference pricing schedules that might apply to a reporting issuer. Product sales prices will reflect these reference prices with further adjustments for quality differentials and transportation to point of sale.
(2) Inflation rates for forecasting pricing and costs.
Reconciliation of Changes in Gross Reserves(1),(2)
|
Factors |
|
Total Proved Reserves (Mbbl) |
Total Proved plus Probable Reserves (Mbbl) |
|
|
|
|
|
|
December 31, 2017 |
|
10,733 |
18,535 |
|
Drilling extensions |
|
903 |
1,283 |
|
Infill drilling |
|
- |
35 |
|
Technical revisions |
|
229 |
72 |
|
Dispositions |
|
(38) |
(55) |
|
Economic factors |
|
21 |
31 |
|
Production |
|
(626) |
(626) |
|
|
|
|
|
|
December 31, 2018 |
|
11,222 |
19,275 |
|
|
|
|
|
|
Reserves replacement ratio (%)(3) |
|
178 |
218 |
Notes:
(1) Gross Reserves are the Company's working interest share of the remaining reserves before deduction of any royalties.
(2) See "Advisories: Reserve Advisory".
(3) Reserves replacement ratio is calculated as net increase to reserves divided by 2018 average production of 626 Mbbl. See "Advisories: Crude Oil Metrics".
Future Development Costs
The following table provides information regarding the development costs deducted in the estimation of the Company's future net revenue using forecast prices and costs as included in the Reserves Report.
|
Year |
|
Proved Reserves (US$000's) |
Proved plus Probable Reserves (US$000's) |
|
|
|
|
|
|
2019 |
|
8,120 |
10,902 |
|
2020 |
|
16,211 |
20,519 |
|
2021 |
|
12,448 |
18,764 |
|
2022 |
|
9,221 |
18,457 |
|
Thereafter |
|
- |
- |
|
Total undiscounted |
|
45,999 |
68,642 |
|
Total discounted at 10% per year |
|
38,207 |
56,188 |
Reserve Life Index by Reserves Category(1),(2)
The Company reduced its December 31, 2018 gross 2P reserve life index by 12% from year-end 2017 from 20.2 years to 17.7 years. The following table provides the reserve life index by reserves category as included in the Reserves Report.
|
Reserves Category |
|
|
Gross Reserves Volume (Mbbl) |
Reserve Life (years) |
Reserve Life Index (years) |
|
|
|
|
|
|
|
|
Total Proved |
|
|
11,222 |
48.0 |
11.9 |
|
Total Probable |
|
|
8,053 |
50.0 |
57.0 |
|
Total Proved plus Probable |
|
|
19,275 |
50.0 |
17.7 |
Notes:
(1) Gross Reserves are the Company's working interest share of the remaining reserves before deduction of any royalties.
(2) See "Advisories: Crude Oil Metrics".
Estimated Company Gross Reserve Metrics(1)
|
(US$000's unless otherwise stated) |
Total Proved Reserves |
Total Proved plus Probable Reserves |
|
|
|
|
|
Exploration capital expenditures(2),(3) |
1,419 |
1,419 |
|
Development capital expenditures (2),(3) |
13,355 |
13,355 |
|
Proceeds from dispositions |
(500) |
(500) |
|
Change in future development costs |
(104) |
553 |
|
Estimated FD&A costs(4) |
14,170 |
14,827 |
|
|
|
|
|
Net reserve additions (Mbbl)(4) |
1,115 |
1,366 |
|
|
|
|
|
Estimated FD&A costs per barrel (US$/bbl)(4) |
12.71 |
10.85 |
|
|
|
|
|
Estimated 2018 operating netback (US$/bbl)(2),(5) |
27.34 |
27.34 |
|
|
|
|
|
Estimated 2018 recycle ratio(4) |
2.2x |
2.5x |
Notes:
(1) Gross Reserves are the Company's working interest share of the remaining reserves before deduction of any royalties.
(2) Financial information was converted to US$ based on the Company's preliminary 2018 unaudited financial statements and is therefore subject to audit. See "Advisories: Unaudited Financial Information".
(3) Exploration and development capital exclude capitalized general and administration costs and corporate asset expenditures. See "Advisories: Crude Oil Metrics".
(4) See "Advisories: Reserve Advisory" and "Advisories: Crude Oil Metrics".
(5) See "Non-GAAP Measures".
Advisories
Reserve Advisory
The disclosure in this announcement summarizes certain information contained in the Reserves Report but represents only a portion of the disclosure required under NI 51-101. Full disclosure with respect to the Company's reserves as at December 31, 2018 will be contained in the Company's Annual Information Form for the year ended December 31, 2018 which will be filed on SEDAR on or before March 31, 2019.
The recovery and reserve estimates of crude oil reserves provided herein are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may eventually prove to be greater than or less than the estimates provided herein. This announcement summarizes the crude oil reserves of the Company and the net present values of future net revenue for such reserves using forecast prices and costs as at December 31, 2018 prior to provision for interest, general and administrative expenses, the impact of any financial derivatives or liabilities associated with the abandonment and reclamation of certain facilities and wells. It should not be assumed that the present worth of estimated future net revenues presented in the tables above represent the fair market value of the reserves. There is no assurance that the forecast prices and costs assumptions will be attained, and variances could be material.
"Proved Developed Producing Reserves" are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing, or if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
"Proved Developed Non-Producing Reserves" are those reserves that either have not been on production or have previously been on production but are shut-in, and the date of resumption of production is unknown.
"Proved Undeveloped Reserves" are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g. when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (proved, probable, possible) to which they are assigned.
"Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
"Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
"Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.
In the Reserves Report GLJ forecasted reserve volumes and future cash flows based upon current and historical well performance through to the economic production limit of individual wells. Notwithstanding established precedence and contractual options for the continuation and renewal of the Company's existing operating agreements, in many cases the forecasted economic limit of individual wells is beyond the current term of the relevant operating agreements.
Crude Oil Metrics
This announcement contains several oil and gas metrics that are commonly used in the oil and gas industry such as reserves additions, reserves replacement ratio, reserve life index, finding, development and acquisition costs, and recycle ratio. These metrics have been prepared by Management and do not have standardized meanings or standardized methods of calculation and therefore such measures may not be comparable to similar measures presented by other companies and should not be used to make comparisons. Such metrics have been included herein to provide readers with additional measures to evaluate the Company's performance; however, such measures are not reliable indicators of the future performance of the Company, and future performance may not compare to the performance in prior periods and therefore such metrics should not be unduly relied upon. The Company uses these oil and gas metrics for its own performance measurements and to provide shareholders with measures to compare the Company's operations over time. Readers are cautioned that the information provided by these metrics, or that can be derived from the metrics presented in this announcement, should not be relied upon for investment purposes.
Net reserve additions are calculated as the change in reserves from the beginning to the end of the applicable period excluding period production. Reserves replacement ratio is calculated as period net reserve additions divided by period production. Reserve life index is calculated as total Company gross reserves divided by annual production.
FD&A costs represent the costs of net property acquisitions and dispositions, exploration, and development incurred, converted to US$ where applicable. Specifically, FD&A is calculated as the sum of net acquisition costs less proceeds of dispositions, capital expenditures excluding capitalized general and administrative costs and corporate capital expenditures incurred in the period and the change in future development costs required to develop those reserves. The Company's annual audit of its December 31, 2018 consolidated financial statements is not complete. Accordingly, unaudited capital expenditure amounts used in the calculation of FD&A costs are Management's estimate and are subject to change. FD&A costs per barrel is determined by dividing current period net reserve additions to the corresponding period's FD&A cost. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.
Recycle ratios are calculated by dividing the annual FD&A costs per barrel to operating netback per barrel prior to realized gains or losses on commodity derivative contracts in the corresponding period (see "Non-GAAP Measures"). Operating netback has been converted to US$ where applicable. The Company's annual audit of its December 31, 2018 consolidated financial statements is not complete. Accordingly, unaudited operating netbacks used in calculations of recycle ratios are Management's estimate and are subject to change. The recycle ratio compares netbacks from existing reserves to the cost of finding new reserves and may not accurately indicate the investment success unless the replacement of reserves are of equivalent quality as the produced reserves.
Unaudited Financial Information
Certain financial information included herein including capital expenditures and operating netback are based on unaudited estimated results. These estimated results are subject to change upon completion of the Company's audited financial statements for the year ended December 31, 2018, and changes could be material.
Non-GAAP Measures
The Company uses operating netback as a key performance indicator of field results. Operating netback does not have a standardized meaning under IFRS and therefore may not be comparable with the calculation of similar measures by other companies. Operating netback is presented on a total and per barrel basis and is calculated by deducting royalties and operating expenses from petroleum sales. Operating netback is presented herein prior to realized gains or losses on commodity derivative contracts. The Company considers operating netback to be a key measure as it demonstrates Touchstone's profitability relative to current commodity prices. This measurement assists Management and investors in evaluating operating results on a historical basis.
Forward-Looking Statements
Certain information provided in this announcement may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking information in this announcement may include, but is not limited to, statements relating to estimated crude oil reserves and the net present values of future net revenue therefrom, future development costs associated with crude oil reserves, the potential undertaking, timing, locations and costs of future well drilling, and the sufficiency of resources to fund future development operations. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Because forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Certain of these risks are set out in more detail in the Company's December 31, 2017 Annual Information Form dated March 26, 2018 which has been filed on SEDAR and can be accessed at www.sedar.com. The forward-looking statements contained in this announcement are made as of the date hereof; and except as may be required by applicable securities laws, the Company assumes no obligation to update publicly or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.
In addition, statements relating to reserves are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated, and can be profitably produced in the future. The recovery and reserve estimates of Touchstone's reserves provided herein are estimates only, and there is no guarantee that the estimated reserves will be recovered. Consequently, actual results may differ materially from those anticipated in the forward-looking statements.
Crude Oil Abbreviations
bbl(s) barrel(s)
bbls/d barrels per day
Mbbl one thousand barrels
About Touchstone
Touchstone Exploration Inc. is a Calgary based company engaged in the business of acquiring interests in petroleum and natural gas rights, and the exploration, development, production and sale of petroleum and natural gas. Touchstone is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Stock Exchange and the AIM market of the London Stock Exchange under the symbol "TXP".
For further information:
Touchstone Exploration Inc.
Mr. Paul Baay, President and Chief Executive Officer Tel: +1 (403) 750-4487
Mr. James Shipka, Chief Operating Officer
Shore Capital (Nominated Advisor and Joint Broker)
Nominated Advisor: Edward Mansfield / Mark Percy / Daniel Bush Tel: +44 (0) 207 408 4090
Corporate Broking: Jerry Keen
GMP FirstEnergy (Joint Broker)
Jonathan Wright / Hugh Sanderson Tel: +44 (0) 207 448 0200
Camarco (Financial PR)
Nick Hennis / Jane Glover / Billy Clegg Tel: +44 (0) 203 757 4980
Competent Persons Statement
In accordance with the AIM Rules for Companies, the technical information contained in this announcement has been reviewed and approved by James Shipka, Chief Operating Officer of Touchstone Exploration Inc. Mr. Shipka is a qualified person as defined in the London Stock Exchange's Guidance Note for Mining and Oil and Gas Companies and is a Fellow of the Geological Society of London (BGS) as well as of member of the Canadian Society of Petroleum Geologists and the Geological Society of Trinidad and Tobago. Mr. Shipka has a Bachelor of Science in Geology from the University of Calgary and has over 30 years of oil and gas exploration and development experience.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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