Touchstone Exploration Inc. (“Touchstone” or the “Company”) (TSX / LSE: TXP) announces its financial and operating results for the three and nine months ended September 30, 2018. Selected financial and operational information is outlined below and should be read in conjunction with Touchstone's September 30, 2018 unaudited interim consolidated financial statements and the related Management's discussion and analysis, both of which will be available under the Company's profile on SEDAR (www.sedar.com) and the Company's website (www.touchstoneexploration.com). Unless otherwise stated, tabular amounts herein are in thousands of Canadian dollars, and amounts in text are rounded to thousands of Canadian dollars.
Third Quarter Highlights
Financial and Operating Results Summary
Three months ended September 30,
Nine months ended September 30,
Average daily oil production(bbls/d)
Net wells drilled
Net wells recompleted
Brent benchmark price(US$/bbl)
Operating netback(1) ($/bbl)
Realized sales price
Financial ($000's except share and per share amounts)
Funds flow from operations
Per share – basic(1)
Per share – diluted(1)
Net earnings (loss)
Per share – basic and diluted
Net debt(1) – end of period
Working capital surplus
Principal long-term balance of loan
Weighted average shares outstanding(000's)
Outstanding shares – end of period (000's)
In the third quarter we continued with our expanded 2018 drilling campaign by successfully drilling three wells, bringing the total to eight development wells drilled through September 30, 2018. Capital expenditures totaled $5,121,000, of which $4,543,000 related to drilling and development activities. We recompleted 12 wells in the quarter, with an aggregate 21 wells recompleted through September 30, 2018.
Third quarter 2018 crude oil production averaged 1,758 bbls/d, a 22% increase relative to the 1,437 bbls/d produced in the third quarter of 2017. Third quarter average daily production increased 2% from the second quarter of 2018, with growth slowed by weather based electrical supply disruptions and higher than normal crude oil inventory held at September 30, 2018.
The eight wells drilled in 2018 combined to add approximately 249 bbls/d of incremental production in the third quarter, despite two new wells beginning to produce in mid-August and one well initiating production at the end of September. The four wells drilled in 2017 continued to perform above internal expectations, contributing approximately 351 bbls/d of production in the quarter.
Our third quarter operating netback was $6,004,000 ($37.13 per barrel), an improvement of 86% compared to $3,234,000 ($24.46 per barrel) recorded in the third quarter of 2017. Higher realized prices and production resulted in a $5,005,000 increase in petroleum sales relative to the third quarter of 2017. This was offset by higher royalties of $1,390,000 from increased production and the sliding scale effect of increased commodity pricing to royalty rates. Operating costs increased by $845,000 from the prior year comparative quarter based on variable costs from increased production and increased well site security and monitoring costs.
We generated funds flow from operations of $3,260,000 in the third quarter of 2018 versus $1,387,000 in the equivalent quarter of 2017. The increase in funds flow was largely attributed to stronger realized crude oil pricing and operating netback combined with a 22% increase in production. As a result, we generated net earnings of $267,000 in the quarter, compared to a net loss of $1,203,000 reported in the prior year comparative quarter.
We maintained stable financial liquidity, exiting the quarter with positive working capital of $2,025,000 and a $15,000,000 principal term loan balance. Our September 30, 2018 net debt of $12,975,000 represented net debt to trailing twelve-month funds flow from operations of 1.3 times and net debt to third quarter 2018 annualized funds flow from operation of 1.0 times.
Touchstone delivered October 2018 crude oil average sales volumes of 1,964 bbls/d at an average realized price of $89.13 (US$68.48) per barrel. After achieving field estimated peak production of 2,088 bbls/d buoyed by flush production from the new WD-8 completed in early October, production volumes decreased as the wells were converted from flowing to pumping production.
We spud the ninth well of our 2018 drilling program on November 1, 2018, and we expect the well to reach total depth within the next two days. The well is located on our WD-8 property and will be followed by the drilling of two additional wells in WD-8 from a common surface location. The Company has contracted a second third party rig to drill an additional WD-4 location, with spudding expected by the end of the month. Touchstone anticipates that the four wells will be drilled and completed by the end of the year.
We previously planned on utilizing a separate rig to drill two shallow work commitment wells on our South Palo Seco property prior to the end of the year. However, Petrotrin identified internal surface lease issues with the two previously approved locations. This will result in the Company drilling a total of 12 wells by year-end, with the two Palo Seco wells likely being pushed into the 2019 drilling program.
The Petroleum Company of Trinidad and Tobago Limited (“Petrotrin”) Restructuring
On August 28, 2018, Petrotrin announced its intention to discontinue refining operations and focus on upstream production and exploration activities. This restructuring is expected to be completed prior to the end of the year. The Company subleases various petroleum production and exploration rights from Petrotrin and the national oil company is currently the Company's sole purchaser of crude oil.
The Company has been officially informed that Petrotrin will continue to meet its contractual operations and commitments throughout the transition process. Petrotrin has indicated that it will be meeting with all pertinent stakeholders following completion of the restructuring to discuss future changes and opportunities.
We do not expect the restructuring to impact our current crude oil production and marketing arrangements and future operations. We believe our crude oil will continue to be purchased by Petrotrin and consolidated with all Trinidad production for export. Touchstone is looking forward to working with the restructured national oil company to grow crude oil production in Trinidad.