TIDMTXP
RNS Number : 1139W
Touchstone Exploration Inc.
14 August 2020
SECOND QUARTER 2020 RESULTS AND OPERATIONAL UPDATE
CALGARY, ALBERTA (August 14, 2020) - Touchstone Exploration Inc.
( " Touchstone ", "we", "our", "us" or the " Company " ) (TSX, LSE:
TXP) provides an operational update and reports its unaudited
financial and operating results for the three months ended June 30,
2020. Selected information is outlined below and should be read in
conjunction with Touchstone's June 30, 2020 unaudited consolidated
interim financial statements and related Management's Discussion
and Analysis, both of which will be available on the Company's
website ( www.touchstoneexploration.com ) and under the Company's
profile on SEDAR ( www.sedar.com ). Unless otherwise stated, all
financial amounts herein are rounded to thousands of United States
dollars .
Operational and Second Quarter Highlights
-- Progressed with the tie-in of our Coho-1 natural gas well,
with facilities construction and pipeline preparation underway.
-- Delivered average daily crude oil production of 1,396 barrels
per day ("bbls/d"), compared to 1,589 bbls/d in the first quarter
of 2020 and 1,768 bbls/d in the second quarter of 2019. As
expected, our crude oil production has reduced due to the ongoing
impact of natural declines, reflecting a strategic focus on our
Ortoire exploration program which has limited capital investment
and reduced discretionary field maintenance expenditures.
-- Invested $1,249,000 in Ortoire exploration activities,
primarily focused on Chinook-1 lease preparations and Coho-1 tie-in
operations.
-- Generated an operating netback of $10.73 per barrel despite
realized price reductions of 36 percent and 51 percent from the
prior quarter and the second quarter of 2019, respectively.
-- Achieved meaningful cost reductions, with operating costs on
a per barrel basis decreasing by 28 percent and general and
administrative expenses declining by 33 percent relative to the
second quarter of 2019.
-- Recognized net loss of $2,742,000 ($0.01 per share) compared
to a net loss of $9,240,000 ($0.05 per share) in the previous
quarter ended March 31, 2020 and a net loss of $833,000 ($0.01 per
share) in the second quarter of 2019.
-- Enhanced our financial flexibility and reduced our overall
cost of borrowing by refinancing our long-term debt, withdrawing
$15 million of the available $20 million balance of our new term
loan to repay our former $20 million Canadian dollar ("C$") term
loan.
-- Maintained financial flexibility amid a weak commodity price
backdrop, exiting the quarter with cash of $6,891,000 and net debt
of $8,466,000.
-- Received approximately $2.8 million in bonds from the
Trinidad government for past due value added tax balances.
Subsequent to quarter-end, we sold the bonds to a financial
institution at face value plus accrued interest.
-- Spudded the Chinook-1 exploration well on August 13, 2020.
Paul R. Baay, President and Chief Executive Officer,
commented:
"The spudding of the Chinook well marks the next phase of our
Ortoire block exploration program that has already delivered two
successful natural gas wells in just over a year. The Chinook well
is being drilled in proximity to the original 1959 well and will
further evaluate the turbidite concept eastward from the original
Coho discovery. With the assistance of a 3D seismic survey, we are
now expecting to move up structure to target the Herrera sands.
In addition to the initial work undertaken at Chinook, we have
made progress across the Ortoire block, commissioning the
previously announced Cascadura area independent reserves evaluation
as well as commencing the Coho-1 tie-in project. In conjunction, we
have been diligently working with the relevant government agencies
to fulfill our regulatory and environmental obligations.
I am happy to report that the Company finished the period with a
healthy cash position with increased financial flexibility through
the new term loan, a position that has been further buoyed by
monetizing our Trinidad government issued bonds in July. Finally, I
would like to thank all members of our staff for their tireless
work and dedication that have enabled us to keep the drilling
program and facilities projects moving forward during these
challenging times. "
Second Quarter Summary and Outlook
The second quarter of 2020 was an extremely challenging period
for the oil and gas sector, as declines in demand caused by the
COVID-19 outbreak resulted in global oversupply and volatile crude
oil prices. Despite these challenges we managed our business
effectively during the quarter, mitigating operational losses and
progressing with the tie-in of our Coho-1 natural gas well and the
drilling of our Chinook-1 exploration well. We took decisive action
to protect our cash flows in the quarter, implementing cost saving
initiatives that significantly lowered our operating and general
and administrative expenses. We successfully adapted our work
procedures to ensure operational safety and business continuity,
with only minor unavoidable delays related to the pandemic.
Going forward, we remain focused on protecting the health of our
employees and communities and ensuring a decisive response for our
investors. Our objective remains to bring our two natural gas
exploration discoveries onto production as soon as possible, which
are expected to not only increase cash flow but insulate us from
further crude oil price volatility from the continued effects of
COVID-19. Drilling operations are ongoing at our Chinook prospect,
and we anticipate drilling the Cascadura Deep location subject to
maintaining ongoing liquidity targets.
The rapid decline in oil prices had a negative impact on our
cash flows during the second quarter of 2020 and our projections
for the balance of the year. Ongoing weakness in commodity prices
resulting from COVID-19 impacts on demand and market volatility may
adversely impact our future financial and operational results. With
market conditions changing rapidly, there continues to be
significant uncertainty around the potential effect this could have
on Touchstone's operations and results, which could be material. We
continue to monitor the situation and economic environment, and we
will adapt our business operations and drilling program to ensure
that we preserve and grow long-term shareholder value.
Operational Update
Touchstone spudded the Chinook-1 exploration well on our Ortoire
exploration block on August 13, 2020 using Well Services rig #80.
The Chinook-1 well is targeting hydrocarbon prospects in the
Herrera formation at depths between 8,000 and 9,200 feet, the same
geologic horizon that was targeted in the Company's successful Coho
and Cascadura discoveries. The Chinook-1 well offsets the BW-7 and
7X wells drilled by Shell Trinidad Limited in 1959 and is targeting
the same zones in which hydrocarbons were previously observed in
the wells in an updip and seismically optimized location. The
exploration well is expected to be drilled to a total measured
depth of 9,880 feet, with drilling operations anticipated to take
approximately 40 days. The Chinook-1 well is the third of four
earning exploration wells under Touchstone's Ortoire Exploration
and Production Licence. The Company has an 80% working interest in
the well but is responsible for 100% of the drilling, completion
and testing costs associated with the well. Heritage Petroleum
Company Limited holds the remaining 20% working interest. There
were no crude oil or natural gas reserves associated with the
Chinook-1 well included in the Company's December 31, 2019
independent reserves evaluation.
We continue to work with various government organizations to
finalize the facilities and tie-in of the Coho natural gas
discovery. We have received initial comments for the required
Certificate of Environmental Compliance ("CEC") from the Trinidad
Environmental Management Authority and are currently preparing our
responses. In parallel with the CEC, the contractor has commenced
construction of the surface equipment along with the preparation of
the materials required for the pipeline. We have also received
approval to begin transportation of the coated pipe to the well
location where it will be stored while awaiting final approval to
commence construction.
We are also working with the National Gas Company of Trinidad
and Tobago ("NGC") to identify the optimal tie-in point for
petroleum volumes from the Cascadura discovery. Earlier this month
a field visit was conducted with NGC to review possible pipeline
routes to existing NGC facilities. Final project design is
contingent upon the drilling results from Chinook-1 and Cascadura
Deep, as it is anticipated that any potential additional petroleum
volumes would be aggregated to one gathering system.
Financial and Operating Results Summary
Three months ended % change Six months ended % change
June 30, June 30,
--------- ---------
2020 2019 2020 2019
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
Operating
Highlights
Average daily
oil
production
(bbls/d) 1,396 1,768 (21) 1,493 1,944 (23)
Brent benchmark
price
($/bbl) 29.70 69.04 (57) 40.23 66.07 (39)
Operating
netback(1)
($/bbl)
Realized sales
price 29.34 60.33 (51) 38.25 58.91 (35)
Royalties (6.99) (17.25) (59) (10.66) (16.19) (34)
Operating
expenses (11.62) (16.23) (28) (12.67) (14.52) (13)
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
10.73 26.85 (60) 14.92 28.20 (47)
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
Financial
Highlights
($000's except
as
indicated)
Petroleum sales 3,755 9,708 (61) 10,453 20,723 (50)
Cash flow (used
in)
from operating
activities (1,921) 1,832 n/a (1,997) 4,569 n/a
Funds flow
(used in)
from
operations(2) (450) 1,310 n/a 807 3,740 (78)
Per share -
basic
and
diluted(1)(2) (0.00) 0.01 n/a 0.00 0.02 n/a
Net loss (2,742) (833) 100 (11,982) (1,018) 100
Per share -
basic
and diluted (0.01) (0.01) - (0.07) (0.01) 100
Exploration
capital
expenditures 1,249 681 83 3,072 1,041 100
Development
capital
expenditures 92 315 (71) 312 714 (56)
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
Total capital
expenditures 1,341 996 35 3,384 1,755 93
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
Working capital
surplus (6,534) (2,062) 100
Principal
non-current
balance of
term loan 15,000 11,459 31
Net debt(1) -
end
of period 8,466 9,397 (10)
---------------- ----------------------- ----------------------- --------- ----------------------- ----------------------- ---------
Share
Information
(000's)
Weighted
average shares
outstanding -
basic
and diluted 183,640 160,688 14 176,500 150,891 17
Outstanding
shares
- end of
period 184,161 160,688 15
Notes:
(1) Non-GAAP financial measure that does not have a standardized
meaning prescribed by International Financial Reporting Standards
and therefore may not be comparable with the calculation of similar
measures presented by other companies. See "Advisories: Non-GAAP
Measures".
(2) Additional GAAP term included in the Company's consolidated
statements of cash flows. Funds flow (used in) from operations
represents net loss excluding non-cash items. See "Advisories:
Non-GAAP Measures".
Operating results
In the second quarter of 2020, we invested $1,249,000 in
exploration activities, as we continued with lease preparations on
the Chinook-1 drill location and commenced Coho-1 well tie-in
operations.
We conducted minimal developmental activity in the quarter, with
average crude oil sales declining to 1,396 bbls/d, a 12 percent
decrease relative to the 1,589 bbls/d produced in the first quarter
of 2020 and a 21 percent reduction from 1,768 bbls/d produced in
the second quarter of 2019. Our crude oil sales volumes have
decreased due to the ongoing impact of natural declines associated
with limited capital investment since the final two wells of the
2018 drilling program were brought onstream in January 2019. In
addition, we deliberately reduced discretionary operating
expenditures in the quarter in response to lower crude oil pricing,
only focusing on working on high priority wells. Development
capital activity for the balance of the year is expected to be
minimal as we focus predominantly on our exploration program.
Financial results
We reported negative funds flow from operations of $450,000 in
the second quarter of 2020 versus funds flow from operations of
$1,310,000 generated in the 2019 second quarter. The decrease
reflected significantly lower commodity prices as a result of the
impact of the COVID-19 pandemic and a 21 percent decline in crude
oil production. For the six months ended June 30, 2020, we
generated funds flow from operations of $807,000 (2019 -
$3,740,000).
We recorded a net loss of $2,742,000 ($0.01 per share) in the
second quarter of 2020 versus a net loss of $833,000 ($0.01 per
share) in the prior year equivalent quarter. The decrease was
primarily attributed to a reduction of $2,947,000 in operating
netbacks, driven by reduced production and realized pricing,
partially offset by savings in royalties and operating costs.
During the quarter, we focused on various cost-saving initiatives,
as quarterly operating costs decreased 43 percent and 28 percent on
an absolute and per barrel basis from the second quarter of 2019,
respectively. We also reduced second quarter 2020 general and
administrative expenses by 15 percent from the previous quarter and
33 percent relative to the second quarter of 2019.
We refinanced our debt in the quarter by entering into a $20
million term loan facility with a Trinidad based financial
institution. $15 million was initially withdrawn to satisfy
obligations related to prepaying our former C$20 million Canadian
based term loan. The new credit facility does not require the
commencement of principal payments until June 15, 2022, and
financial covenants are not tested until the year ended December
31, 2022. By transferring our senior debt to Trinidad, the
refinancing is expected to reduce our future after tax cost of
borrowing from 8 percent to approximately 3.5 percent.
We exited the quarter with a working capital surplus of
$6,534,000, $15 million withdrawn on our term credit facility and
net debt of $8,466,000. Our liquidity is augmented by $5 million of
undrawn credit capacity, with principal payments not due until the
second quarter of 2022.
Touchstone Exploration Inc.
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 about Touchstone, please
visit our website at www.touchstoneexploration.com or contact:
Touchstone Exploration Inc.
Mr. Paul Baay, President and Chief Executive Officer Tel: +1
(403) 750-4487
Mr. Scott Budau, Chief Financial Officer
Mr. James Shipka, Chief Operating Officer
Shore Capital (Nominated Advisor and Joint Broker)
Nominated Advisor: Edward Mansfield / Daniel Bush / Michael McGloin Tel: +44 (0) 207 408 4090
Corporate Broking: Jerry Keen
Canaccord Genuity (Joint Broker)
Adam James / Thomas Diehl Tel: +44 (0) 207 523 8000
Camarco (Financial PR)
Nick Hennis / Billy Clegg Tel: +44 (0) 203 781 8330
Advisories
Non-GAAP Measures
This announcement contains terms commonly used in the oil and
natural gas industry, including funds flow from operations, funds
flow from operations per share, operating netback and net debt.
These terms do not have a standardized meaning prescribed under
Generally Accepted Accounting Principles ("GAAP") and may not be
comparable to similar measures presented by other companies.
Shareholders and investors are cautioned that these measures should
not be construed as alternatives to cash flow from operating
activities, net earnings, net earnings per share, total
liabilities, or other measures of financial performance as
determined in accordance with GAAP. Management uses these Non-GAAP
measures for its own performance measurement and to provide
stakeholders with measures to compare the Company's operations over
time.
Funds flow from (used in) operations is an additional GAAP
measure included in the Company's consolidated statements of cash
flows. Funds flow from operations represents net earnings (loss)
excluding non-cash items. Touchstone considers funds flow from
operations to be an important measure of the Company's ability to
generate the funds necessary to finance capital expenditures and
repay debt. The Company calculates funds flow from operations per
share by dividing funds flow from operations by the weighted
average number of common shares outstanding during the applicable
period.
The Company uses operating netback as a key performance
indicator of field results. Operating netback is presented on a
total and per barrel basis and is calculated by deducting royalties
and operating expenses from petroleum sales. If applicable, the
Company also discloses operating netback both prior to realized
gains or losses on derivatives and after the impacts of derivatives
are included. Realized gains or losses represent the portion of
risk management contracts that have settled in cash during the
period, and disclosing this impact provides Management and
investors with transparent measures that reflect how the Company's
risk management program can impact netback metrics. 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 with evaluating
operating results on a historical basis.
The Company closely monitors its capital structure with a goal
of maintaining a strong financial position in order to fund current
operations and the future growth of the Company. The Company
monitors working capital and net debt as part of its capital
structure to assess its true debt and liquidity position and to
manage capital and liquidity risk. Working capital is calculated as
current assets minus current liabilities as they appear on the
consolidated statements of financial position. Net debt is
calculated by summing the Company's working capital and the
principal (undiscounted) non-current amount of senior secured
debt.
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 the
Company's exploration plans and strategies, including anticipated
drilling, timing, development, tie-in, facilities construction, and
ultimate production from exploration wells; the Company's
expectation regarding future demand for the Company's petroleum
products and economic activity in general; the impacts of COVID-19
on the Company's business and measures taken in response thereto;
uncertainty regarding COVID-19 and the impact it will have on
future petroleum pricing and global financial markets; the
Company's expected after tax cost of debt; and the sufficiency of
resources and available financing to fund future capital
expenditures and maintain financial liquidity. 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.
Since 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 2019
Annual Information Form dated March 25, 2020 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.
Touchstone Exploration Inc.
Consolidated Interim Statements of Financial Position
(unaudited)
Stated in thousands of United States dollars
As at June 30, December
31, 2019
Note 2020
-------------------------------------------- ----- --------- ----------
Assets
Current assets
Cash $ 6,891 $ 6,182
Restricted cash 17 271 271
Accounts receivable 4 5,102 7,348
Assets held for trading 5 2,805 -
Crude oil inventory 71 71
Prepaid expenses 618 246
15,758 14,118
Exploration assets 6 16,576 13,579
Property and equipment 7 32,714 55,730
Restricted cash 9 589 -
Other assets 193 496
Abandonment fund 11 1,181 1,125
Total assets $ 67,011 $ 85,048
-------------------------------------------- ----- --------- ----------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 8 $ 8,981 $ 13,928
Income taxes payable 8 243 1,329
9,224 15,257
Lease liabilities 39 105
Term loan 9 14,667 13,966
Other liabilities 10 947 769
Decommissioning liabilities 11 9,645 11,547
Deferred income taxes 12 3,092 13,289
-------------------------------------------- ----- --------- ----------
Total liabilities 37,614 54,933
-------------------------------------------- ----- --------- ----------
Shareholders' equity
Shareholders' capital 13 72,654 61,507
Contributed surplus 2,386 2,341
Accumulated other comprehensive loss (14,526) (14,598)
Accumulated deficit (31,117) (19,135)
-------------------------------------------- ----- --------- ----------
Total shareholders' equity 29,397 30,115
-------------------------------------------- ----- --------- ----------
Total liabilities and shareholders' equity $ 67,011 $ 85,048
-------------------------------------------- ----- --------- ----------
Commitments (note 17)
See accompanying notes to these unaudited consolidated interim
financial statements.
Touchstone Exploration Inc.
Consolidated Interim Statements of Net Loss and Comprehensive
Loss (unaudited)
Stated in thousands of United States dollars (except per share
amounts)
Three months ended Six months ended
June 30, June 30,
---------------------------------- -----
Note 2020 2019 2020 2019
---------------------------------- ----- ---------- ---------- ----------- ----------
Revenues
Petroleum sales $ 3,755 $ 9,708 $ 10,453 $ 20,723
Royalties (895) (2,776) (2,914) (5,695)
---------------------------------- ----- ---------- ---------- ----------- ----------
Petroleum revenue 2,860 6,932 7,539 15,028
Gain on financial derivatives 15 - 25 - 25
Other income 22 3 63 11
---------------------------------- ----- ---------- ---------- ----------- ----------
Total revenue 2,882 6,960 7,602 15,064
---------------------------------- ----- ---------- ---------- ----------- ----------
Expenses
Operating 1,487 2,612 3,462 5,107
General and administrative 996 1,487 2,163 2,802
Net finance 14 1,768 251 2,506 572
Foreign exchange loss 15 453 91 138 129
Share-based compensation 13 81 49 125 80
Depletion and depreciation 7 814 1,249 1,902 2,700
Impairment (recovery) expense 6,7 (116) 63 19,187 141
Total expenses 5,483 5,802 29,483 11,531
---------------------------------- ----- ---------- ---------- ----------- ----------
(Loss) earnings before
income taxes (2,601) 1,158 (21,881) 3,533
Provision for income taxes
Current expense 252 1,435 284 3,053
Deferred (recovery) expense (111) 556 (10,183) 1,498
---------------------------------- ----- ---------- ---------- ----------- ----------
Total income tax expense
(recovery) 12 141 1,991 (9,899) 4,551
---------------------------------- ----- ---------- ---------- ----------- ----------
Net loss (2,742) (833) (11,982) (1,018)
Currency translation adjustments (29) (188) 72 (221)
---------------------------------- ----- ---------- ---------- ----------- ----------
Comprehensive loss $ (2,771) $ (1,021) $ (11,910) $ (1,239)
---------------------------------- ----- ---------- ---------- ----------- ----------
Net loss per common share
Basic and diluted 13 $ (0.01) $ (0.01) $ (0.07) $ (0.01)
---------------------------------- ----- ---------- ---------- ----------- ----------
See accompanying notes to these unaudited consolidated interim
financial statements.
Touchstone Exploration Inc.
Consolidated Interim Statements of Changes in Shareholders'
Equity (unaudited)
Stated in thousands of United States dollars
Accumulated
Shareholders' Contributed other comprehensive Accumulated Shareholders'
capital surplus loss deficit equity
-------------------------- -------------- ------------ --------------------- ------------ ----------------
January 1, 2019 $ 56,987 $ 2,172 $ (14,427) $ (13,515) $ 31,217
Comprehensive loss - - (221) (1,018) (1,239)
Private placement
(note 13) 4,496 - - - 4,496
Share-based compensation
expense (note 13) - 80 - - 80
Share-based compensation
capitalized - 11 - - 11
-------------------------- -------------- ------------ --------------------- ------------ ----------------
June 30, 2019 $ 61,483 $ 2,263 $ (14,648) $ (14,533) $ 34,565
-------------------------- -------------- ------------ --------------------- ------------ ----------------
January 1, 2020 $ 61,507 $ 2,341 $ (14,598) $ (19,135) $ 30,115
Comprehensive loss - - 72 (11,982) (11,910)
Private placement
(note 13) 10,850 - - - 10,850
Share-based settlements
(note 13) 297 (97) - - 200
Share-based compensation
expense (note 13) - 125 - - 125
Share-based compensation
capitalized - 17 - - 17
June 30, 2020 $ 72,654 $ 2,386 $ (14,526) $ (31,117) $ 29,397
-------------------------- -------------- ------------ --------------------- ------------ ----------------
See accompanying notes to these unaudited consolidated interim
financial statements.
Touchstone Exploration Inc.
Consolidated Interim Statements of Cash Flows (unaudited)
Stated in thousands of United States dollars
Three months ended Six months ended
June 30, June 30,
--------------------------------- -----
Note 2020 2019 2020 2019
--------------------------------- ----- ----------- -------- ----------- ----------
Cash provided by (used
in) the following activities:
Operating activities
Net loss $ (2,742) $ (833) $ (11,982) $ (1,018)
Items not involving cash from
operations:
Non-cash gain on financial
derivatives 15 - (25) - (25)
Unrealized foreign exchange
loss 15 311 70 10 128
Share-based compensation 13 81 49 125 80
Depletion and depreciation 7 814 1,249 1,902 2,700
Impairment (recovery) expense 6,7 (116) 63 19,187 141
Other 14 1,313 165 1,748 236
Deferred income tax (recovery)
expense 12 (111) 556 (10,183) 1,498
Decommissioning expenditures - 16 - -
--------------------------------- ----- ----------- -------- ----------- ----------
Funds flow (used in) from
operations (450) 1,310 807 3,740
Change in non-cash working
capital (1,471) 693 (2,804) 1,000
Costs related to financial
derivatives 15 - (171) - (171)
--------------------------------- ----- ----------- -------- ----------- ----------
Cash flows (used in) from
operating activities (1,921) 1,832 (1,997) 4,569
--------------------------------- ----- ----------- -------- ----------- ----------
Investing activities
Exploration asset expenditures 6 (1,249) (681) (3,072) (1,041)
Property and equipment
expenditures 7 (92) (315) (312) (714)
Abandonment fund expenditures 11 (27) (37) (61) (81)
Proceeds from asset disposition 22 - 45 -
Change in non-cash working
capital (1,107) (873) (4,001) (2,982)
--------------------------------- ----- ----------- -------- ----------- ----------
Cash flows used in investing
activities (2,453) (1,906) (7,401) (4,818)
---------------------------------------- ----------- -------- ----------- ----------
Financing activities
Changes in restricted cash 9 (589) - (589) -
Net payment of term loan 9 (133) - (133) (112)
Payment of production liability 10 (50) (97) (141) (207)
Net finance lease receipts (16) (80) (39) (112)
Issuance of common shares 13 139 - 11,044 4,496
Change in non-cash working
capital (34) (11) (60) 3
Cash flows (used in) from financing
activities (683) (188) 10,082 4,068
---------------------------------------- ----------- -------- ----------- ----------
(Decrease) increase in
cash (5,057) (262) 684 3,819
Cash, beginning of period 12,219 7,586 6,182 3,554
Impact of foreign exchange
on foreign denominated
cash balances (271) (74) 25 (123)
Cash, end of period $ 6,891 $ 7,250 $ 6,891 $ 7,250
--------------------------------- ----- ----------- -------- ----------- ----------
The following are included
in cash flow from operating
activities:
Interest paid in cash 528 221 819 448
Income taxes paid in cash 222 1,424 1,369 2,011
--------------------------------- ----- ----------- -------- ----------- ----------
See accompanying notes to these unaudited consolidated interim
financial statements.
Notes to the Consolidated Interim Financial Statements
(unaudited)
As at June 30, 2020 and for the three and six months ended June
30, 2020 and 2019
1. Reporting Entity
Touchstone Exploration Inc. and its subsidiaries (collectively,
the " Company " ) are engaged in the business of crude oil and
natural gas exploration, development, acquisition and production.
The Company is currently active in the Republic of Trinidad and
Tobago ( " Trinidad " ).
Touchstone Exploration Inc. is incorporated under the laws of
Alberta, Canada with its head and principal office located at 4100,
350 7(th) Avenue SW, Calgary, Alberta, Canada T2P 3N9. The
Company's common shares are listed on the Toronto Stock Exchange
and on the AIM market of the London Stock Exchange under the symbol
" TXP " .
2. Basis of Preparation and Statement of Compliance
These unaudited condensed consolidated interim financial
statements (the " financial statements " ) have been prepared in
accordance with International Accounting Standard ( " IAS " ) 34
Interim Financial Reporting using accounting policies consistent
with International Financial Reporting Standards ( " IFRS " ) as
issued by the International Accounting Standards Board. These
financial statements are condensed as they do not include all the
information required by IFRS for annual financial statements and
therefore should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31,
2019 (the "annual financial statements"). Unless otherwise stated,
amounts presented in these financial statements are denominated in
United States dollars ( "$" or "US$") . Certain reclassification
adjustments have been made to these financial statements to conform
to the current presentation.
The financial statements have been prepared on a historical cost
basis, except as detailed in the accounting policies disclosed in
Note 3 " Summary of Significant Accounting Policies " of the
Company's annual financial statements. All accounting policies and
methods of computation followed in the preparation of these
financial statements are consistent with those of the previous
financial year. All inter-entity transactions have been eliminated
upon consolidation between the Company and any subsidiaries in
these financial statements. The Company's operations are viewed as
a single operating segment by the chief operating decision makers
of the Company for the purposes of resource allocation and
assessing performance.
These financial statements were authorized for issue by the
Company's Board of Directors on August 13, 2020.
3. Recent Developments and Impacts to Use of Estimates, Judgements and Assumptions
The outbreak of COVID-19 and subsequent measures intended to
limit the pandemic has contributed to significant declines and
abnormal volatility of global financial markets. The pandemic has
adversely affected global commercial activity and has significantly
reduced worldwide demand for crude oil, resulting in global
oversupply and an unprecedented level of volatility and price
weakness .
The scale and duration of these developments remain uncertain,
and the full extent of the impact on the Company's operations and
future financial performance is currently unknown. It will depend
on future developments that are uncertain and unpredictable,
including the duration and spread of COVID-19, its continued impact
on capital and financial markets on a macro-scale and any new
information that may emerge concerning the severity of the virus.
These uncertainties may persist beyond when it is determined how to
contain the virus or treat its impact. The outbreak presents
uncertainty and risk with respect to the Company, its performance,
and estimates and assumptions used by Management in the preparation
of its financial statements.
A full list of the significant estimates and judgements made by
Management in the preparation of its financial statements are
included in Note 5 "Use of Estimates, Judgements and Assumptions"
of the annual financial statements. The outbreak and continuing
volatile market conditions have increased the complexity of
estimates, judgements and assumptions used to prepare these
financial statements, particularly related to the recoverability of
asset carrying values and the deferred income tax provision.
Changes to any of these estimates, judgements and assumptions
could result in a material adjustment to the carrying values of
assets and liabilities. Estimates and underlying assumptions are
reviewed on an ongoing basis, and any revisions to accounting
estimates are recognized in the period in which the estimates are
revised.
4. Financial Assets and Credit Risk
Credit risk arises from the potential that the Company may incur
a loss if a counterparty to a financial instrument fails to meet
its obligation in accordance with agreed terms. As at June 30,
2020, the Company was exposed to credit risk with respect to its
accounts receivable and finance lease receivable included in other
assets. The credit risk associated with the Company's finance lease
receivable is minimal as the asset is secured by the underlying
fixed assets, with ownership transferring to the counterparty
subsequent to the final lease payment in 2022.
The Company's credit exposure on accounts receivable typically
pertains to accrued sales revenue for monthly production volumes
sold to Heritage Petroleum Limited ("Heritage") and value added
taxes ("VAT") due from the Trinidad government. As at June 30,
2020, $2,953,000 of petroleum sales was included in accounts
receivable, representing approximately 58 percent of the Company's
consolidated accounts receivable balance (December 31, 2019 -
$2,074,000 and 28 percent, respectively). $1,436,000 of the
Company's consolidated accounts receivable was comprised of VAT as
at June 30, 2020, which represented approximately 28 percent of the
total balance (December 31, 2019 - $4,283,000 and 58 percent,
respectively).
As at June 30, 2020, the Company determined that the average
expected credit loss on the Company's accounts receivables was $nil
(December 31, 2019 - $nil). The Company believes that the accounts
receivable balances that are past due are ultimately collectible,
as the majority are due from the Trinidad government for VAT, and
although the timing of settlement is uncertain, the Company has not
historically experienced any material collection issues (see Note
5).
The aging of accounts receivable as at June 30, 2020 and
December 31, 2019 is disclosed in the following table.
Accounts receivable aging June 30, December
31, 2019
2020
--------------------------------- ---- ---------------------- ---------------------
Not past due $ 4,196 $ 3,581
Past due (greater than 90 days) 906 3,767
--------------------------------------- ---------------------- ---------------------
Balance $ 5,102 $ 7,348
--------------------------------------- ---------------------- ---------------------
5. Assets Held for Trading
In May 2020, the Trinidad government issued the Company's
Trinidad subsidiaries an aggregate $2,793,000 in bonds in lieu of
payment of past due VAT receivable balances. The Company classified
$2,805,000 as assets held for trading as at June 30, 2020,
representing the value of the issued bonds plus accrued interest
thereon (December 31, 2019 - $nil). Subsequent to June 30, 2020,
the bonds were sold to a Trinidad financial institution at face
value plus accrued interest.
6. Exploration Assets
Six months Year ended
ended June December
30, 2020 31, 2019
-------------------------
Balance, beginning of year $ 13,579 $ 3,644
Additions 3,072 10,191
Impairment (1) (309)
Effect of change in foreign exchange rates (74) 53
-------------------------------------------- ------------------------- -----------------------
Balance, end of period $ 16,576 $ 13,579
-------------------------------------------- ------------------------- -----------------------
During the three and six months ended June 30, 2020, the Company
recognized impairment reversals related to exploration assets of
$116,000 and $28,000, respectively (2019 - impairments of $63,000
and $141,000). The impairment recoveries were based on the reversal
of previously accrued East Brighton licence obligations that were
updated to reflect invoices received. The accrued fees were
previously impaired given the property's estimated recoverable
value was $nil.
The June 30, 2020 exploration asset carrying value of
$16,576,000 was included in the Ortoire cash-generating unit
("CGU"). No indicators of impairment were identified by the Company
as at June 30, 2020.
7. Property and Equipment
Petroleum Corporate Total
assets assets
---------------------------------- ---------------------- ------------------------- ----------------------
Cost
Balance, January 1, 2019 $ 134,308 $ 1,817 $ 136,125
Additions 2,324 - 2,324
Right-of-use assets 1,114 80 1,194
Derecognition of right-of-use
assets (830) - (830)
Decommissioning liability change
in estimate 2,422 - 2,422
Effect of change in foreign
exchange rates 1,031 90 1,121
Balance, December 31, 2019 $ 140,369 $ 1,987 $ 142,356
Additions 328 - 328
Decommissioning liability change
in estimate (1,610) - (1,610)
Effect of change in foreign
exchange rates (692) (91) (783)
Balance, June 30, 2020 $ 138,395 $ 1,896 $ 140,291
---------------------------------- ---------------------- ------------------------- ----------------------
Accumulated depletion, depreciation and
impairments
Balance, January 1, 2019 $ 71,538 $ 1,546 $ 73,084
Depletion and depreciation 5,036 135 5,171
Impairments 7,594 - 7,594
Derecognition of right-of-use
assets (175) - (175)
Decommissioning liability change
in estimate 371 - 371
Effect of change in foreign
exchange rates 505 76 581
Balance, December 31, 2019 $ 84,869 $ 1,757 $ 86,626
Depletion and depreciation 1,847 55 1,902
Impairment 19,215 - 19,215
Decommissioning liability change
in estimate 344 - 344
Effect of change in foreign
exchange rates (429) (81) (510)
Balance, June 30, 2020 $ 105,846 $ 1,731 $ 107,577
---------------------------------- ---------------------- ------------------------- ----------------------
Carrying amounts
Balance, December 31, 2019 $ 55,500 $ 230 $ 55,730
Balance, June 30, 2020 $ 32,549 $ 165 $ 32,714
---------------------------------- ---------------------- ------------------------- ----------------------
At June 30, 2020, the Company evaluated its petroleum assets for
indicators of any potential impairment or related reversal. As a
result of this assessment, no indicators were identified, and no
impairment or related reversal was recorded.
As a result of the COVID-19 pandemic, global crude oil
oversupply and the resulting drastic decrease in forecast crude oil
prices compared to those at December 31, 2019, indicators of
impairment were identified for all CGUs at March 31, 2020. The
Company performed impairment tests on all CGUs, whereby the
recoverable amount of each CGU was compared to its associated
carrying value. The recoverable amounts were estimated using value
in use calculations incorporating the net present value of the
after-tax cash flows derived from the Company's proved developed
producing reserves in 2020 and 2021 and proved plus probable oil
reserves thereafter as estimated by the Company's independent
reserves evaluator as at December 31, 2019 and internally adjusted
to reflect updated price assumptions as of April 1, 2020. The
estimated recoverable amounts used an after-tax discount rate of 20
percent. Based on the results of the impairment tests completed,
the Company recognized gross non-cash impairment charges of
$19,215,000.
Estimating the recoverable amounts of the Company's CGUs
involves several assumptions and estimates which are subject to
estimation uncertainty, as well as a significant degree of
judgement. Changes in any of the key judgments, such as a revision
in reserves, changes in forecast commodity prices, capital
expenditures, operating costs or the discount rate would impact the
estimated recoverable amounts.
8. Financial Liabilities and Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its obligations associated with its financial liabilities.
While the decrease in commodity prices as a result of the COVID-19
pandemic will negatively impact the Company's financial performance
and position, the Company believes that future cash flows will be
adequate to meet financial obligations as they come due.
The Company manages liquidity risk by continuously monitoring
actual and forecasted cash flows from operating, investing and
financing activities and opportunities to withdraw from its
existing debt facility or to issue additional equity. Given that
the Company has minimal developmental work obligations and
guarantees at June 30, 2020, the Company will continue to manage
its capital expenditures to reflect current financial resources in
the interest of sustaining long-term viability.
Refer to Note 9 "Term Loan", Note 16 "Capital Management" and
Note 17 "Commitments" for further details regarding the Company's
debt structure and capital management objectives. The following
table sets forth estimated undiscounted cash outflows and financial
maturities of the Company's financial liabilities as at June 30,
2020.
Financial maturity by period
--------------- -------------------- -------------------------------------------------------------------------------
Undiscounted Less than 1 to 3 Thereafter
cash outflows 1 year years
--------------- -------------------- ------------------------- ------------------------- -------------------------
Accounts
payable and
accrued
liabilities $ 8,981 $ 8,981 $ - $ -
Income taxes
payable 243 243 - -
Term loan
principal
(note 9) 15,000 - 3,000 12,000
Estimated
production
liabilities
(note 10) 1,996 276 1,361 359
Term loan
interest
(note 9) 5,397 1,177 2,257 1,963
Lease
liabilities 212 175 37 -
Total
financial
liabilities $ 31,829 $ 10,852 $ 6,655 $ 14,322
--------------- -------------------- ------------------------- ------------------------- -------------------------
9. Term Loan
The Company's indirectly wholly owned Trinidadian subsidiary
(the "Borrower") entered into a $20 million, seven-year term credit
facility arrangement (the "New Term Loan") from a Trinidad based
financial institution effective June 15, 2020 (the "Effective
Date"). On the Effective Date, the Borrower withdrew $15 million to
satisfy the Company's obligations relating to prepaying the C$20
million Canadian based term loan (the "Retired Term Loan"). During
the three and six months ended June 30, 2020, the Company incurred
$180,000 in expenses and recorded a $1,158,000 revaluation loss in
connection with prepaying the Retired Term Loan.
Pursuant to the New Term Loan, the Borrower has the option to
withdraw the remaining $5 million available balance prior to one
year from the Effective Date. The New Term Loan is a senior secured
syndicated loan, with the lender acting as initial lender, arranger
and administrative agent. The New Term Loan bears a fixed interest
rate of 7.85% per annum, compounded and payable quarterly.
Principal payments commence two years from the Effective Date with
twenty equal and consecutive quarterly principal repayments
thereafter. Prepayments are permitted after one year with a 1.0%
penalty and a 30-day notice period, and no penalty shall apply on
principal repayments after three years. The New Term Loan is
principally secured by a pledge of equity interests and fixed and
floating security interests over all present and after acquired
assets of the Borrower and its wholly owned Trinidad exploration
and production subsidiary. The New Term Loan contains industry
standard representations and warranties, undertakings, events of
default, and financial covenants, which will be tested on an annual
basis commencing with the year ended December 31, 2022.
At all times the Borrower must maintain a cash reserves balance
of not less than the equivalent of two quarterly interest payments.
Accordingly, the Company classified $589,000 as non-current
restricted cash on the consolidated statement of financial position
as at June 30, 2020 (December 31, 2019 - $nil).
The New Term Loan is measured at amortised cost, with the
aggregate associated financing fees of $383,000 unwound using the
effective interest rate method to the face value at maturity. The
following table details the movements of the Company's term loan
balances for the periods indicated.
Retired New Term Term Loan
Term Loan Loan liability
liability
-------------------------------- ---------------------- ---------------- ----------------------
Balance, January 1, 2019 $ 10,130 $ - $ 10,130
Advance, net of amendment and
transaction fees 3,590 - 3,590
Revaluation gain (656) - (656)
Accretion 384 - 384
Effect of change in foreign
exchange rates 518 - 518
Balance, December 31, 2019 $ 13,966 - $ 13,966
(Payments) advances, net of
fees (14,750) 14,617 (133)
Revaluation loss on prepayment 1,158 - 1,158
Accretion 173 50 223
Effect of change in foreign
exchange rates (547) - (547)
-------------------------------- ---------------------- ---------------- ----------------------
Balance, June 30, 2020 $ - $ 14,667 $ 14,667
-------------------------------- ---------------------- ---------------- ----------------------
10. Other Liabilities
In connection with the Retired Term Loan, the Company previously
granted its former lender a production payment equal to 1.33
percent of petroleum sales from Trinidad land holdings, payable
quarterly through October 31, 2023. Upon repayment of the Retired
Term Loan, the Company and the lender agreed not to buyout the
production payment liability and as such entered into an amended
production payment agreement to continue the obligation under its
previous terms and conditions. The production payment liability is
revalued at each reporting period based on internally estimated
future production and forward crude oil pricing forecasts .
The following table details the movements of the Company's
production liability for the periods indicated.
Six months Year ended
ended June December
30, 2020 31, 2019
------------------------
Balance, beginning of year $ 989 $ 733
Revaluation loss 295 622
Payments (141) (404)
Effect of change in foreign exchange rates (38) 38
-------------------------------------------- ------------------------ -----------------------
Balance, end of period $ 1,105 $ 989
-------------------------------------------- ------------------------ -----------------------
Current (included in accounts payable
and accrued liabilities) $ 158 $ 220
Non-current 947 769
-------------------------------------------- ------------------------ -----------------------
Other liabilities $ 1,105 $ 989
-------------------------------------------- ------------------------ -----------------------
11. Decommissioning Liabilities and Abandonment Fund
Pursuant to production and exploration contracts with Heritage
and the Trinidad and Tobago Minister of Energy and Energy
Industries ("MEEI"), the Company is obligated to remit payments
into abandonment funds based on production. The Company remits
$0.25 per barrel of crude oil sold, and the funds will be used for
the future abandonment of wells in the related licenced area. As at
June 30, 2020, the Company classified $1,181,000 of accrued or paid
fund contributions as non-current abandonment fund assets (December
31, 2019 - $1,125,000).
The Company estimated the net present value of the cash flows
required to settle its decommissioning liabilities to be $9,645,000
as at June 30, 2020 based on an estimated inflation adjusted future
liability of $21,509,000 (December 31, 2019 - $11,547,000 and
$27,153,000, respectively). The following table summarizes the
Company's estimated decommissioning liabilities at the end of the
respective periods.
Six months Year ended
ended June December
30, 2020 31, 2019
------------------------
Balance, beginning of year $ 11,547 $ 8,915
Liabilities incurred 9 91
Accretion expense 123 372
Revisions to estimates (1,993) 2,108
Effect of change in foreign exchange rates (41) 61
Balance, end of period $ 9,645 $ 11,547
-------------------------------------------- ------------------------ -----------------------
Based on currently available data, the long-term outlook for
Trinidad inflation decreased from December 31, 2019, as the March
2020 inflation rate was near zero. At June 30, 2020,
decommissioning liabilities were estimated using a long-term
risk-free rate of 5.7 percent and a long-term inflation rate of 2.0
percent (December 31, 2019 - 5.5 percent and 3.3 percent,
respectively), which reduced the estimated decommissioning
provision by an aggregate $1,993,000 during the six months ended
June 30, 2020 .
12. Income Taxes
The following table is a reconciliation of income taxes
calculated by applying the applicable Trinidad statutory rates to
net earnings before income tax expense.
Six months Year ended
ended June December
30, 2020 31,
2019
-------------------------
Net loss before income taxes $ (21,881) $ (2,065)
Trinidad statutory rate 55.00% 55.00%
------------------------------------------- ------------------------- ----------------------
Expected income tax recovery at statutory
rate $ (12,035) $ (1,136)
Effect on income tax resulting from:
Supplemental petroleum tax 6 4,782
Deductible supplemental petroleum tax (3) (3,079)
Benefit of tax assets not recognized 710 (1,176)
Tax rate differential 1,169 3,889
Other 254 275
------------------------------------------- ------------------------- ----------------------
Total income tax (recovery) expense $ (9,899) $ 3,555
------------------------------------------- ------------------------- ----------------------
The net deferred income tax liability solely relates to the
Company's Trinidad operations. The following table details the
components of the liability for the six months ended June 30,
2020.
December Recognized Recognized June 30,
31, 2019 in equity in earnings
(loss)
2020
------------------ ---------------------- ------------------------- ----------------------- ----------------------
Property and
equipment $ (21,766) $ 44 $ 10,621 $ (11,101)
Decommissioning
liabilities 638 (2) (151) 485
Term loan - - (161) (161)
Loss carry
forwards 5,706 (23) (435) 5,248
Other 2,133 (5) 309 2,437
Net deferred
income
tax liability $ (13,289) $ 14 $ 10,183 $ (3,092)
------------------ ---------------------- ------------------------- ----------------------- ----------------------
The Company's June 30, 2020 net deferred tax liability includes
$8,170,000 of deferred tax asset, which are reviewed at each
reporting date to assess whether it is probable that the related
tax benefit will be realized in the future (December 31, 2019 -
$8,477,000). As at June 30, 2020, the Company estimated that future
taxable income was sufficient to realize the deferred tax asset.
The estimates used to determine future taxable income are subject
to measurement uncertainty, and actual results could differ from
estimates.
13. Shareholders' Capital
Issued and outstanding common shares
Common shares outstanding and shareholders' Number of Shareholders'
capital shares capital
--------------------------------------------- -------------- -----------------------
Balance, January 1, 2019 129,021,428 $ 56,987
Issued pursuant to private placement,
net of fees 31,666,667 4,496
Share-based settlements 15,000 24
Balance, December 31, 2019 160,703,095 $ 61,507
Issued pursuant to private placement,
net of fees 22,500,000 10,850
Share-based settlements 958,000 297
--------------------------------------------- -------------- -----------------------
Balance, June 30, 2020 184,161,095 $ 72,654
--------------------------------------------- -------------- -----------------------
The Company is authorized to issue an unlimited number of voting
common shares without nominal or par value.
February 2020 private placement
On February 26, 2020, the Company completed a private placement
directed toward United Kingdom institutional investors, whereby
gross proceeds of $11,653,000 were raised by way of issuing
22,500,000 new common shares at a price of approximately C$0.69 per
common share. Fees incurred from the private placement were
$803,000, which included brokerage commissions and legal and
corporate finance advisory fees, resulting in net proceeds of
$10,850,000.
Equity compensation plans
The Company has a share option plan pursuant to which options to
purchase common shares of the Company may be granted by the Board
of Directors to directors, officers, employees and consultants of
the Company. Compensation expense is recognized as the options
vest. Unless otherwise determined by the Board of Directors,
vesting typically occurs one third on each of the next three
anniversaries of the grant date as recipients render continuous
service to the Company, and the share options typically expire five
years from the date of the grant.
Number of Weighted
share options average
exercise
price
------------------------------ ------------------- ----------------------
Outstanding, January 1, 2019 8,534,640 C$ 0.44
Granted 2,550,000 0.23
Expired (2,344,040) 0.87
------------------------------ ------------------- ----------------------
Outstanding, January 1, 2020 8,740,600 C$ 0.26
Granted 2,611,000 0.48
Exercised (958,000) 0.29
Expired (147,500) 2.10
------------------------------ ------------------- ----------------------
Outstanding, June 30, 2020 10,246,100 C$ 0.29
------------------------------ ------------------- ----------------------
Exercisable, June 30, 2020 5,341,335 C$ 0.22
------------------------------ ------------------- ----------------------
The Company has an incentive share compensation option plan
which provides for the grant of incentive share options to purchase
common shares of the Company at a C$0.05 exercise price. A maximum
of one million common shares have been approved for issuance under
this plan, of which 437,625 have been historically issued under the
plan as of June 30, 2020. There were no incentive share options
outstanding as at June 30, 2020, and no incentive options have been
awarded since 2014.
During the three and six months ended June 30, 2020, the Company
recorded share-based compensation expenses of $81,000 and $125,000
in relation to share option plans, respectively (2019 - $49,000 and
$80,000).
Weighted average common shares
The following table sets forth the details of weighted average
common shares used in calculating net loss per common share for
each of the periods indicated.
Three months ended June 30, Six months ended June
30,
2020 2019 2020 2019
------------------ ----------------------- ----------------------- ----------------------- -----------------------
Weighted average
common
shares, basic 183,639,870 160,688,095 176,500,391 150,890,673
Dilutive impact - - - -
of
share-based
compensation
Weighted average
common
shares, diluted 183,639,870 160,688,095 176,500,391 150,890,673
------------------ ----------------------- ----------------------- ----------------------- -----------------------
There was no dilutive impact to the weighted average number of
common shares for the three and six months ended June 30, 2020, as
6.2 million and 5.5 million share options were excluded from the
diluted weighted average share calculation as they were
anti-dilutive, respectively (2019 - 1.3 million and 1.0
million).
14. Net Finance Expense
Three months ended Six months ended June
June 30, 30,
-----------------------
2020 2019 2020 2019
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Interest income $ (19) $ (29) $ (25) $ (60)
Term loan interest
expense 288 223 587 445
Term loan revaluation
loss (gain) 1,158 - 1,158 (277)
Production liability
revaluation loss
(gain) 35 (23) 295 209
Accretion on term
loan 99 78 223 151
Accretion on decom.
liabilities 21 90 123 180
Lease liability
interest
expense 5 24 10 50
Finance expense 180 - 180 -
Other 1 (112) (45) (126)
Net finance expense $ 1,768 $ 251 $ 2,506 $ 572
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Cash net finance
expense $ 455 $ 116 $ 758 $ 337
Non-cash net finance
expense 1,313 135 1,748 235
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Net finance expense $ 1,768 $ 251 $ 2,506 $ 572
----------------------- ---------------------- ---------------------- ---------------------- ---------------------
15. Market Risk Management
Management of cash flow variability is an integral component of
the Company's business strategy. Changing business conditions are
monitored regularly and, where material, reviewed with the Board of
Directors to establish risk management guidelines to be used by
Management. The risk exposures inherent in the movements of the
price of crude oil and fluctuations in foreign exchange rates are
proactively reviewed by the Company and may be managed through the
use of derivative contracts as considered appropriate.
Commodity price risk
The Company's operational and financial condition are largely
dependent on the commodity prices received from petroleum
production. Movement in commodity prices could have a significant
positive or negative effect on the Company's net earnings and cash
flows. To alleviate this risk, the Company maintains a risk
management strategy to protect funds flow from operations from the
volatility of commodity prices. The Company's strategy focuses on
the periodic use of puts, costless collars, swaps or fixed price
contracts to limit exposure to fluctuations in commodity prices
while allowing for participation in commodity price increases. The
Company had no commodity-based risk management contracts in place
during the three and six months ended June 30, 2020. The Company
will continue to monitor forward commodity prices and may enter
future commodity-based risk management contracts to reduce the
volatility of petroleum sales and protect future development and
exploration capital programs.
In April 2019, the Company purchased put option contracts from a
financial institution for 800 bbls/d at a strike price of Brent
$56.10 per barrel from June 1, 2019 to December 31, 2019. As at
June 30, 2019, the Company recognized a financial derivative asset
of $196,000 related to the put options. For the three and six
months ended June 30, 2019, the Company recorded derivative gains
of $25,000 and $25,000, respectively related to commodity
management contracts.
Foreign currency risk
Foreign currency exchange risk arises from changes in foreign
exchange rates that may affect the fair value or future cash flows
of the Company's financial assets or liabilities. As the Company
primarily operates in Trinidad, fluctuations in the exchange rate
between the TT$ and the US$ could have a significant effect on
reported results, as the sales prices of crude oil are determined
by reference to US$ denominated benchmark prices and the majority
of the Company's operating costs are denominated in TT$. In
addition, the Company has US$ denominated debt and related interest
payments. These risks are currently mitigated by the fact that the
TT$ is informally pegged to the US$. The Company has further
foreign exchange exposure on head office costs and production
payment liabilities denominated and payable in Canadian dollars, as
well as costs payable in pounds sterling required to maintain its
AIM listing. Any material movements in the C$ to US$ exchange rate
may have a material effect on the Company's reporting results.
The Company's foreign currency policy is to monitor foreign
currency risk exposure in its areas of operations and mitigate that
risk where possible by matching foreign currency denominated
expenses with petroleum sales denominated in foreign currencies.
The Company attempts to limit its exposure to foreign currency
through collecting and paying foreign currency denominated balances
in a timely fashion. The Company had no contracts in place to
manage foreign currency risk as at or during the three and six
months ended June 30, 2020 and year ended December 31, 2019.
16. Capital Management
The basis for the Company's capital structure is dependent on
the Company's expected business growth and any changes in the
business and commodity price environment. The Company's long-term
goal is to fund current period decommissioning and capital
expenditures necessary for the replacement of production declines
using only funds flow from operations. Profitable growth activities
will be financed with a combination of funds flow from operations
and other sources of capital. The Company typically uses equity and
term debt to raise capital.
When evaluating the Company's capital structure, Management's
long-term strategy is to maintain net debt to trailing twelve-month
funds flow from operations at or below a ratio of 2.0 times. While
the Company may exceed this ratio from time to time, efforts are
made after a period of variation to bring the measure back in line.
Net debt is a Non-IFRS measure calculated by summing the Company's
working capital and the principal (undiscounted) non-current amount
of senior secured debt. Working capital is a Non-IFRS measure
calculated as current assets minus current liabilities as they
appear on the statements of financial position. Net debt is used by
Management as a key measure to assess the Company's liquidity.
Funds flow from operations is an additional IFRS measure included
in the Company's consolidated statements of cash flows. Net debt
and funds flow from operations are not standardized measures and
therefore may not be comparable with the calculation of similar
entities by other entities.
The Company also monitors its capital management through the net
debt to net debt plus equity ratio. The Company's strategy is to
utilize more equity than debt, thereby targeting net debt to net
debt plus shareholders' equity at a ratio of less than 0.4 to 1.
The Company's internal capital management calculations for the six
months ended June 30, 2020 and year ended December 31, 2019 are set
forth in the table below.
Target measure June 30, December
31, 2019
2020
----------------------------------- ---------------- ---------------------- ----------------------
Current assets $ (15,758) $ (14,118)
Current liabilities 9,224 15,257
----------------------------------------------------- ---------------------- ----------------------
Working capital (surplus) deficit $ (6,534) $ 1,139
Principal non-current balance
of term loan 15,000 15,364
Net debt $ 8,466 $ 16,503
Shareholders' equity 29,397 30,115
----------------------------------------------------- ---------------------- ----------------------
Net debt plus equity $ 37,863 $ 46,618
----------------------------------------------------- ---------------------- ----------------------
Trailing twelve-month funds
flow from operations(1) $ 3,907 $ 6,840
----------------------------------------------------- ---------------------- ----------------------
Net debt to funds flow from at or < 2.0
operations times 2.17 2.41
----------------------------------- ---------------- ---------------------- ----------------------
Net debt to net debt plus equity < 0.4 times 0.22 0.35
----------------------------------- ---------------- ---------------------- ----------------------
Note:
(1) Trailing twelve-month funds flow from operations as at June
30, 2020 include funds flow from operations for the six months
ended June 30, 2020 plus funds flow from operations for the July 1
through December 31, 2019 interim period.
17. Commitments
The Company has minimum work obligations under various operating
agreements with Heritage, exploration commitments under exploration
and production agreements with the MEEI and various lease
commitments for office space and equipment. The following table
sets forth the Company's estimated minimum contractual capital
requirements as at June 30, 2020.
Estimated payments due by year
------------------------- --------------- --------------------------------------------------------------------------
Total 2020 2021 2022 Thereafter
------------------------- --------------- --------------- --------------- ------------------- -------------------
Operating agreements $ 2,834 $ 117 $ 953 $ 261 $ 1,503
Exploration agreements 6,214 4,214 2,000 - -
Other commitments 248 101 147 - -
Total minimum
commitments $ 9,296 $ 4,432 $ 3,100 $ 261 $ 1,503
------------------------- --------------- --------------- --------------- ------------------- -------------------
Under the terms of its operating agreements, the Company must
fulfill minimum work obligations on an annual basis over the
specific licence term. In aggregate, the Company is obligated to
drill 12 wells and perform 18 well recompletions prior to the end
of 2021. As of June 30, 2020, 10 wells were drilled, and 15 well
recompletions were completed with respect to these obligations. The
Company has provided $271,000 in cash collateralized guarantees to
Heritage to support its operating agreement work commitments as of
June 30, 2020 (December 31, 2019 - $271,000).
Under the terms of its Ortoire exploration licence, the Company
has drilled two of four commitment wells and must also acquire and
process 85-line kilometres of 2D seismic. The initial stage of the
licence expires in October 2020, and the Company has applied for an
extension based on its two commercial discoveries to date.
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.
END
UPDGPUQARUPUPUW
(END) Dow Jones Newswires
August 14, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Touchstone Exploration (LSE:TXP)
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Da Feb 2024 a Mar 2024
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