Friday’s reserves upgrade for Touchstone Exploration Inc (LON:TXP, CVE:TXP) is clearly an important boost for the Trinidad firm, but, house broker Shore Capital reckons imminent well testing at the Cascadura project is a step to a “step change” for the company.
This morning, Touchstone reported its annual reserves statement showing a 6% increase in proved (1P) reserves, to 11.8mln barrels, and a 14% rise in proved and probable (2P) to 22.05mln barrels.
These numbers were elevated by the inclusion of the Coho field, the first of two new discoveries in the Ortoire licence block.
Touchstone, meanwhile, added that testing will resume this weekend at Cascadura which is the most significant of the two discoveries.
Cenkos analyst Craig Howie, in a note, said: “the commencement of testing of a major liquids-rich gas discovery at Cascadura came after the effective date of GLJ’s report.
“Cascadura has therefore yet to be reflected in reported reserves and, whilst we will be adjusting our sum-of-the-parts valuation to reflect the latest reserves position, we continue to believe that new reserves at Cascadura will be a key valuation driver once these have been assessed.”
He added: “we significantly upgrad our FY2021 production forecasts and now estimate a US$7.7mln bottom line profit next year.
“Our latest forecasts (and recently upgraded sum-of-the-parts valuation) are intended to provide a conservative baseline ahead of a further update on Cascadura testing.
“We therefore continue to see an upside bias to further revisions, as more information emerges in the near term.”
Commenting on the upcoming phase of testing, Howie noted: “This second stage yet to be tested covers a wide zone of contiguous sand, so we see important additional upside beyond the lowermost zone reported on in February (including a potential doubling of the levels of deliverability so far confirmed).
“One thing that is already clear is that Cascadura is set to provide a step-change for Touchstone’s production profile, beyond the success previously achieved with Coho-1.
“Importantly, with the company now enjoying increased financial firepower following a US$11.6mln placing last month, its recent successes at Cascadura also de-risk the follow-on Royston and Chinook wells, which sit along the same geological trend.”