Touchstone Exploration Announces Strong Second Quarter 2012 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire -05/30/12)- Touchstone Exploration Inc. (TAB.V) ("Touchstone" or the "Company") reported its operating and financial results for the second quarter of 2012. The Company is currently reporting under International Financial Reporting Standards ("IFRS") and all values in this release are in thousands of United States dollars unless otherwise stated.

Highlights for the three months ended March 31, 2012 are noted below:

 

--  The Company's quarterly oil production averaged 1,012 barrels per day, 9
    percent higher than the preceding quarter and 229 percent greater than
    the corresponding 2011 quarter.
--  With average realized selling prices of $102.18 per barrel received in
    the quarter, petroleum revenue increased 32 percent from the preceding
    quarter and 280 percent from the comparative 2011 quarter.
--  Funds flow from operations(1) was $1,935 or $0.02 per basic share, the
    Company's first positive quarterly figure. On a year to date basis,
    funds flow from operations was $1,790 or $0.02 per basic share.
--  Funds flow netbacks(1) increased 567 percent from $(4.54) in the second
    quarter of 2011 to $21.22.
--  The Company drilled three new wells and performed nine recompletions in
    the quarter, thereby adding five new wells and seventeen recompletions
    in the current fiscal year.
--  The Company continues to plan to follow its 2012 calendar year capital
    program, drilling and recompleting a number of wells in the second half
    of the fiscal year and into the first quarter of 2013.
--  Subsequent to quarter end, Touchstone obtained a new long-term loan,
    effectively replacing the existing vendor take-back note payable with
    extended payment terms.

FINANCIAL AND OPERATING HIGHLIGHTS

 

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                                  Three months ended       Six months ended
($000's except share and per                March 31               March 31
 share amounts)                      2012       2011        2012       2011
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Financial
Petroleum revenue net of
 royalties                        $ 6,476    $ 1,418    $ 12,345    $ 2,060

Net loss                           (1,509)      (673)     (2,093)    (1,196)
  Per share (basic and
   diluted)                         (0.01)     (0.01)      (0.02)     (0.03)

Funds flow from operations(1)       1,935       (135)      1,790       (377)
  Per share (basic)(1)               0.02      (0.00)       0.02      (0.01)

Operating netback(1) ($/Bbl)        50.44      37.52       49.96      35.06
Funds flow netback(1) ($/Bbl)       21.22      (4.54)      10.19      (8.60)

Capital expenditures                4,148      1,906       6,991      3,564
Assets acquired from
 acquisitions                           -      8,084           -      8,084
Total assets (end of period)      128,630     25,136     128,630     25,136
Total debt(1) (end of period)      26,395          -      26,395          -
Shareholders' equity (end of
 period)                           41,805     20,016      41,805     20,016

Weighted average shares
 outstanding
  Basic and diluted           108,928,242 52,316,961 108,928,242 44,554,579
Outstanding shares (end of
 period)
  Basic and diluted           108,928,242 60,359,906 108,928,242 60,359,906

Operational
Average daily production
 (Bbls/day)                         1,012        308         969        236
Average realized selling
 prices ($/Bbl)                    102.18      89.50       99.02      84.50

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(1) The terms "fund flows from operations", "funds flow from operation per share", "operating netbacks", "funds flow netbacks" and "total debt" are non-GAAP measures. Please see the "Non-GAAP measures" discussion in this news release.

The Company's operating netback on a per barrel basis increased during the quarter and year to date due to an increase in production and an increase in realized selling prices. For the three months ended March 31, 2012, the Company's gross sales were 92,114 barrels which represented an increase of 233 percent from the 27,683 barrels sold in the corresponding 2011 quarter. The average realized prices received increased 14 percent from $89.50 per barrel in Q2 2011 to $102.18 per barrel in Q2 2012. For the six months ended March 31, 2012, the Company's gross sales were 177,257 barrels of oil (2011 - 43,002 Bbls) which generated gross revenue of $17,552 and net revenue of $8,856 compared to $3,634 and $1,508 for the six months ended March 31, 2011, respectively. The average realized selling price received by the Company was $99.02 per barrel for the six months ended March 31, 2012 compared to $84.50 for the comparative 2011 period.

The year-over-year increase in oil production is due to the Company drilling and recompleting new wells coupled with the acquisitions of existing production from the Coora, New Dome and South Palo Seco blocks and the blocks acquired in the August 19, 2011 acquisition of the Primera group of companies.

The Company's funds flow netbacks increased by 567 percent and 218 percent for the three and six month periods ended March 31, 2012 compared to the same comparative periods in 2011, respectively. General and administrative expenses per barrel of oil decreased based on stable quarter-over-quarter spending and due to increased production. This was offset by increased transaction costs, finance costs (excluding non-cash debt and decommission obligation accretion) and income taxes.

CHAIRMAN'S REPORT

The second quarter ended March 31, 2012 was another successful quarter for the Company. The Company recorded its seventh straight quarter of production growth and achieved its first quarter of positive funds flow from operations.

Operationally during the second quarter, the Company drilled three new wells, performed nine recompletions and three re-activations. On a year to date basis, the Company has drilled five new wells, recompleted seventeen wells and re-activated seven wells. Through initiated cost saving strategies, the Company has achieved stable quarter-over-quarter operational, general and administrative spending, which coupled with increasing production allowed for increased operational and funds flow netbacks.

Subsequent to the quarter, the Company announced the closing of its $10.0 million disposition of its 33.8 percent non-operated interest in the Moruga Block in Trinidad. In addition, the Company announced that it has arranged a long-term loan to repay the existing vendor take-back note payable which in part financed the acquisition of the Primera group of companies. The new financing allows for extended payment terms. The Company also announced that it has reached an agreement to purchase $4.0 million (CAD) of the existing $6.0 million (CAD) convertible debentures, thereby decreasing its total debt position.

Looking forward to the third quarter and beyond, with the decreased total debt and extended long-term debt repayment terms, the Company is expecting growth as additional production volumes will be achieved through the carry-forward of our 2012 calendar year capital drilling program. The third quarter will see the Company recommence its drilling program with operations scheduled in WD-8, Coora, and Sunty. The Company will drill up to seventeen additional wells depending on available associated approvals. The Company has put in place a number of new initiatives to reduce down time of new wells that are brought onto production either through the recompletion or drilling programs. The Company has also put in place a technical team to monitor each well on a continual basis at the field level to make instantaneous adjustments to assure continual production from all new wells.

The Company would like to thank Ms. Vashti Bhairoo, Mrs. Tricia Thong and Mr. Kenrick George, the three recipients of the employee of the month award during the quarter. Through their hard work, they displayed dedication to the Company. For their efforts, the Company made donations to local charities on their behalf.

FINANCIAL STATEMENTS

Below is selected financial statement information as at and for the three and six months ended March 31, 2012 with 2011 comparative data. For full disclosure of our unaudited condensed consolidated financial statements and the related Management, Discussion and Analysis, please visit our website (www.touchstoneexploration.com) or SEDAR.

 

TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)

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                                             March 31, September  October 1,
(000's of US$)                                   2012   30, 2011       2010
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ASSETS

Current assets
  Cash and cash equivalents                 $   2,878  $   7,118  $   3,228
  Accounts receivable                           5,587      4,897        662
  Inventory                                       110        165          -
  Prepaid expenses and deposits                   446        199         54
  Promissory note receivable                        -          -        185
  Assets held for sale                         10,000     10,000          -
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                                               19,021     22,379      4,129
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Investment in associate                         5,122      5,024          -
Exploration and evaluation assets              30,765     30,745          -
Property and equipment                         61,431     56,765      5,139
Goodwill                                       12,291     12,291      2,312
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                                            $ 128,630  $ 127,204  $  11,580
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable and accrued liabilities  $   7,344  $   6,547  $     347
  Income taxes payable                         12,024     10,914         37
  Current portion of note payable              23,362     11,707          -
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                                               42,730     29,168        384

Liability component of convertible
 debentures                                     3,033      2,587          -
Embedded derivatives related to
 convertible debentures                         1,460      1,371          -
Decommissioning obligations                     7,430      6,998          -
Note payable                                        -     11,650          -
Deferred income taxes                          32,172     31,948      2,241
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                                               86,825     83,722      2,625
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Shareholders' equity
  Share capital                                40,764     15,844      9,567
  Warrants                                      3,834      3,834          -
  Share subscriptions                               -     24,947          -
  Contributed surplus                           1,597      1,154        183
  Accumulated deficit                          (4,390)    (2,297)      (795)
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                                               41,805     43,482      8,955
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                                            $ 128,630  $ 127,204  $  11,580
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TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(unaudited)

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                                   Three months ended      Six months ended
                                             March 31              March 31
(000's of US$)                        2012       2011       2012       2011
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Income
  Petroleum                      $   9,412  $   2,478  $  17,552  $   3,634
  Royalties                         (2,936)    (1,060)    (5,207)    (1,574)
  Share of (loss) earnings of
   an associate                       (333)         -         98          -
  Interest and other                    53          3        170          4
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                                     6,196      1,421     12,613      2,064
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Expenses
  Operating costs                    1,829        379      3,489        552
  General and administrative         1,057      1,085      2,173      1,612
  Transaction costs                    (22)        41        433         75
  Depletion and depreciation         1,315        179      2,416        255
  Share-based payments                 246        232        443        438
  Loss on unrealized embedded
   derivatives                         218          -         38          -
  Foreign exchange loss                225         12        337         11
  Finance expenses                   1,018         38      2,051         38
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                                     5,886      1,966     11,380      2,981
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Earnings (loss) before income
 taxes                                 310       (545)     1,233       (917)

Income taxes
  Current expense                    1,021         39      3,102        191
  Deferred expense                     798         89        224         88
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                                     1,819        128      3,326        279
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Net loss and comprehensive loss
 for the period                  $  (1,509) $    (673) $  (2,093) $  (1,196)
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Net loss per share:
  Basic and diluted              $   (0.01) $   (0.01) $   (0.02) $   (0.03)
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Weighted average number of
 common shares outstanding
 (000's):
  Basic and diluted                108,928     52,317    108,928     44,555
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TOUCHSTONE EXPLORATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

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                                   Three months ended      Six months ended
                                             March 31              March 31
(000's of US$)                        2012       2011       2012       2011
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Cash provided by (used in):
Cash flows from operating
 activities:
  Net loss for the period        $  (1,509) $    (673) $  (2,093) $  (1,196)
  Items not involving cash from
   operations:
    Depletion and depreciation       1,315        179      2,416        255
    Share-based payments               246        232        443        438
    Loss on unrealized embedded
     derivatives                       218          -         38          -
    Unrealized foreign exchange        151          -        151          -
    Accretion on liability
     component of convertible
     debenture                         202          -        346          -
    Accretion on
     decommissioning
     obligations                       181         38        363         38
    Deferred income tax expense        798         89        224         88
    Share of (loss) earnings of
     an associate                      333          -        (98)         -
  Change in non-cash working
   capital                          (6,121)      (760)    (3,405)      (973)
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                                    (4,186)      (895)    (1,615)    (1,350)
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Cash flows from financing
 activities:
  Proceeds from issuance of
   share capital                         -     12,859          -     12,859
  Share issuance costs                   -       (685)       (27)    (1,040)
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                                         -     12,174        (27)    11,819
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Cash flows from investing
 activities:
  Exploration and evaluation
   expenditures                          -          -        (20)         -
  Property and equipment
   expenditures                     (4,148)    (1,906)    (6,991)    (3,564)
  Acquisitions                           -     (8,084)         -     (8,084)
  Change in non-cash working
   capital                           4,102       (981)     4,413        115
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                                       (46)   (10,971)    (2,598)   (11,533)
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Effect of foreign exchange on
 cash and cash equivalents             (10)         -          -          -
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Change in cash and cash
 equivalents                        (4,242)       308     (4,240)    (1,064)

Cash and cash equivalents,
 beginning of period                 7,120      1,856      7,118      3,228
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Cash and cash equivalents, end
 of period                       $   2,878  $   2,164  $   2,878  $   2,164
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Cash paid during the period for
 interest                        $     517  $       -  $   1,138  $       -
Cash paid during the period for
 income taxes                    $       1  $     126  $   1,805  $     128
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Touchstone Exploration Inc. is 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 internationally. The Company is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Venture Exchange under the symbol "TAB". Please see the latest corporate presentation on the Touchstone Exploration Inc. website at www.touchstoneexploration.com.

READER ADVISORY

Forward-looking Statements

The information herein contains forward-looking statements and assumptions. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and other similar expressions. Such statements represent the Company's internal projections, estimates or beliefs concerning, future growth, results of operations, production, future capital and other expenditures (including the amount, nature and sources of funding thereof), future financing sources, plans for and results of drilling activity, environmental matters, future commodity prices, the magnitude of oil and gas reserves, business prospects and opportunities, among other things. By their nature, forward-looking statements are subject to numerous known and unknown risks and uncertainties that could significantly affect anticipated results in the future and accordingly, actual results may differ materially from those predicted. Although the Company's management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

The Company is exposed to numerous operational, technical, financial and regulatory risks and uncertainties, many of which are beyond its control and may significantly affect anticipated future results. Operations may be unsuccessful or delayed as a result of competition for services, supplies and equipment, mechanical and technical difficulties, ability to attract and retain qualified employees on a cost-effective basis, commodity and marketing risk and seasonality. The Company is subject to significant drill risks and uncertainties including the ability to find oil reserves on an economic basis and the potential for technical problems that could lead to well blowouts and environmental damage. The Company is exposed to risks relating to the inability to obtain timely regulatory approvals, surface access, access to third party gathering and processing facilities, transportation and other third party related operation risks. The company is subject to industry conditions including changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced. There are uncertainties in estimating the Company's reserve base due to the complexities in estimated future production, costs and timing of expenses and future capital. The financial risks the Company is exposed to include, but are not limited to, the impact of general economic conditions in Canada and the Republic of Trinidad and Tobago, the ability to access sufficient capital from internal and external sources, changes in income tax laws or changes in tax law and incentive programs relating to the oil and natural gas industry and fluctuations in commodity prices, interest rates, the U.S./Canadian dollar exchange rate and the U.S./Trinidad and Tobago dollar exchange rate. The Company is subject to regulatory legislation, the compliance with which may require significant expenditures and non-compliance with which may result in fines, penalties or production restrictions.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise, and as such, undue reliance should not be placed on forward-looking statements. Readers are also cautioned that the foregoing list of factors and assumptions is not exhaustive. The Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws. Additional information on these and other factors that could affect the Company's operations and financial results are included elsewhere herein and in reports on file with Canadian securities regulatory authorities and may be accessed through the Internet on the Canadian System for Electronic Document Analysis and Retrieval website (www.sedar.com).

Non-GAAP Measures

Included in this press release are references to financial measures commonly used in the oil and gas industry such as funds flow from operations, funds flow from operations per share, total debt, operating netback and corporate netbacks. These terms do not have a standardized meaning under IFRS and may not be comparable to similarly titled measures reported by other companies.

Funds flow from operations represents cash flow from operating activities before changes in non-cash working capital. Management believes that in addition to net earnings and cash flows from operating activities, funds flow from operations is a useful financial measurement which assists in demonstrating the Company's ability to fund capital expenditures necessary for future growth or to 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 period.

Total debt is calculated by summing the Company's debt per the financial statements (not including working capital and derivative instruments). The Company uses this information to assess its true debt position.

The Company uses operating netbacks as a key performance indicator of field results. Operating netbacks are presented on a per barrel basis and are calculated by deducting royalties and operating expenses from petroleum sales. Operating netbacks are a useful measure to compare the Company's operations with those of its peers.

The Company also uses funds flow netbacks as a key performance indicator of results. Funds flow netbacks are presented on a per barrel basis and are calculated by deducting royalties, operating expenses, general and administrative expenses, transaction costs, finance expenses excluding accretion and current income tax expenses from petroleum sales. Funds flow netbacks are a useful measure to compare the Company's operations with those of its peers.