Touchstone Exploration Q&A: Great report with positive operational news from COHO (LON:TXP)

Touchstone Exploration plc (LON:TXP) Chief Executive Officer Paul Baay caught up with DirectorsTalk to discuss the reserves update, delays in testing gas bearing zones at Chinook and Cascadura Deep, testing for oil in two zones at Chinook, when we can expect first production at COHO and what milestones investors should be looking out for going forward.

Q1: A detailed and informative update just published with plenty to talk about. First off, congratulations on the reserves update, it was a significant upgrade, can you talk us through the upgrade and what it means for Touchstone Exploration?

A1: The independent reserves report which we do annually reflects most of what we did last year but not everything. We’re now over 100 million barrels on a 3P basis for reserves but that doesn’t include the last two wells that we drilled which is the Chinook well and the Cascadura Deep well.

Under the reporting rules, we can’t add them to the reserve report until after they’ve been completed which will be sometime in the next couple of weeks so still some more room to run but really a very large jump over a couple hundred percent from where we were last year.

So, it was a great report, really happy with it.

Q2: Testing is obviously at the forefront of many investors’ minds, you mentioned there have been a few delays in testing the gas bearing zones at Chinook and Cascadura Deep. What were the reasons for that?

A2: The reason was pretty simple, there’s only one gas testing unit that’s big enough to handle these wells on the island and it just wasn’t ready to go. It had to be recertified and they had to order in some parts and put it all back together, it just hasn’t been ready to go until this week so we haven’t been able to move forward.

This week, we’ve got five different zones to test, we’ll test them back to back and we should have all the result in by the end of April.

Q3: It looks like you’ve made good progress with testing for oil in two zones at Chinook but with mixed success on the results. What have the two zones shown the team and are you enthused by the results?

A3: The short answer is we’re very excited by the results. We ended up testing a couple of zones that we probably wouldn’t have tested if the gas equipment was available but our thinking was these are exploratory wells, we’d just take a shot and get some pressures.

The first one was really the deepest zone in the well and it looks like we encountered a fault and got really high pressure and extremely high temperature water, 160 degrees C. The key to that is the oil we received there shows us that there is hydrocarbon in that sub-thrust sheet, not economic at this location anyway, but what we think looking at the seismic, we can move up 1,000 feet structurally ion a future location. So, that certainly sets up a really exciting prospect.

We then went up to a zone just above that and we have 34 API oil at the surface but we need to get it on pump and get the load fluid out of the hole so we’re in the midst of doing that now and we’ll have a better idea of what kind of rates and deliverability we can get out of that.

There’s some big oil pools in this area, the offsetting oil pool is probably the best example, Barrackpore has produced about 19 million barrels for the last fifty years.

Q4: Some positive operational news as well from COHO, when can investors expect to see first production and what is it likely to do to the company’s revenue stream?

A4: COHO, it got approved in late January and we’ve now been in the field doing the pipeline and facility work at surface so that should come in April with our first production check in May.

When it does come in, it should be pretty close to about $500,000 a month in revenue and another thing, it’ll virtually double our production the day it comes on so it’s substantial.

I think what’s more important is it’ll be the first production from Ortoire which really will be the starting phase for the next couple of years as we continue to layer on more and more production.

Q5: Finally, what are the key milestones that investors should be looking out for from Touchstone Exploration and is there anything else you want to say to investors?

A5: As far as the milestones go, I think the key milestones are going to be getting COHO on production, the testing of the two wells, that’ll take place between now and the end of April, and we’ll probably announce those as we go, I don’t think we’ll wait until the very end, we’ll announce as we go.

The final, real exciting part will be the final well in the phase 1 exploration programme which is called Royston and that looks like it’ll spud the end of April or May as we’ve already got the road built in, just doing the final upgrades on it and ready for the rig to come in April. It’s still the biggest prospect that we’ve drilled down there so lots of things looking forward.

It’s going to be a busy year but the final part of that will also be bringing on our big volumes of gas, probably November and December so by this time next year, it’ll look like a very different entity than where it is today.

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