Touchstone Exploration - an odd duck with plenty to quack about

Speculative risk but high potential for both losses and gains

Touchstone Exploration (TXP.TO) is an oil & gas producer operating in Trinidad and Tobago. As at January 2019, through a private company I was associated with, I held 500,000 shares at an average cost of CAD$0.46 and was under water.

I can’t remember what motivated the original purchase but I kept following the company even after I had sold those shares at a tidy profit. My memory is imperfect but I think Touchstone was the residue of Petrobank (in which I held shares) and which merged with Touchstone in 2014 changing its name to Touchstone.

I was surprised when I learned Touchstone had made some (given the size of the company) relatively large discoveries including a natural gas discovery they hope to put into production this year or next. Touchstone estimates (and is careful to caution investors that the estimate is based solely on drilling results and actual production may differ materially from the estimate) this discovery may produce about 9,500 Boe/day of natural gas. For a company with Q1 2022 production less than 1,500 Boe/day, that is a big deal.

I saw a BNN interview with Josef Schacter recently where he chose Touchstone as a “top pick” and touted its potentially rapid growth in production to somewhere around 28,000 Boe/day over the next few years. I don’t know where Schacter got his information but I have no reason to doubt its accuracy.

Touchstone has a market capitalization of around CAD$200 million. At 28,000 Boe/day (if that ever materializes and I have no idea if it will or not) and at present natural gas and oil prices, revenue of CAD$500 million is in the range of possible outcomes (an average realized price of CAD$50 per Boe) and cash flow somewhere north of CAD$150 million (or more) a possible outcome. These numbers are wild ass guesses which I present only to put four corners around the scale of the company if Schacter is right about its production growth.

Schacter suggests the production rise begins this year and continues. Cash flow in the range of CAD$150 million implies an enterprise value in the CAD$600 million range, about triple today’s value.

This is a highly speculative article on a highly speculative company. This week I purchased 10,000 shares at just under CAD$1.50 per share and hope to be pleasantly surprised by the outcome. I recognize (as you should) that a total loss of this investment is possible but I pass along my thoughts so some of you will start to follow the name and over time we can exchange ideas about its investment merits. My token CAD$15,000 investment is a “hedge” against that tail risk outcome where I wake up, the stock has had a dramatic rise in output and I have missed the boat entirely. Of course, that boat might just as easily sink but I can live with that size of loss if Schacter is wrong.

I will follow Touchstone and post a more definitive article as information is released on the company’s progress.