Another flash blog I’m afraid, I’m in the smoke today on board duties.
Zephyr has announced that the Company’s lender, North-Dakota based First International Bank and Trust, has completed its regularly scheduled semi-annual redetermination of the Company’s revolving credit facility.
The redetermination process resulted in a 30% increase to the RCF, with the new borrowing base set at US$13 million. As of today, US$8 million is currently outstanding on the RCF, providing the Company with an additional US$5m of liquidity which can be drawn at Zephyr’s discretion. In addition to the RCF, at 1 November 2022, Zephyr had an additional US$15.8 million of outstanding borrowings, the majority of which is comprised of a senior bank term loan with FIBT.
As of today’s date the Company has more than US$18.5m in available liquidity taking into account its current cash balances and the increased headroom on the RBL.
The next semi-annual redetermination of the RCF is scheduled to take place in the second quarter of 2023.
Colin Harrington, Zephyr’s Chief Executive, said: “The successful redetermination and resulting 30% increase to the RCF borrowing base is an excellent testament to the strength of Zephyr’s underlying assets – and the increased debt capacity is particularly notable in light of the Company’s production revenues of over US$25 million during the first half of 2022.
“We expect to continue to generate strong free cash flow for the foreseeable future, which in turn will fund the planned expansion of both our operated and non-operated asset portfolios.
“I would like to thank FIBT, a regional bank with over 110 years of history in North Dakota, and its team for their continued strong support of Zephyr.”
A solid vote of confidence by the Bank both in the Zephyr management team and of course the complete asset portfolio. This is important as the team has worked hard on developing the exciting Paradox Basin as well as the producing and non-operated assets in the Williston.
More when I have spoken to Colin Harrington.
Touchstone has reported its operating and financial results for the three and nine months ended September 30, 2022. Selected information is outlined below and should be read in conjunction with our September 30, 2022 unaudited interim condensed consolidated financial statements and related Management’s discussion and analysis, both of which will be available under our profile on SEDAR (www.sedar.com) and on our website (www.touchstoneexploration.com). Unless otherwise stated, all financial amounts herein are rounded to thousands of United States dollars.
Third Quarter 2022 Financial and Operational Highlights
· Produced quarterly average crude oil volumes of 1,272 bbls/d, representing a 10 percent decrease relative to the preceding quarter and a 5 percent decrease from the 1,333 bbls/d produced in the third quarter of 2021, as three key wells were down in the quarter.
· Realized petroleum sales of $9,933,000 from an average crude oil price of $84.85 per barrel compared to $7,650,000 from an average realized price of $62.37 per barrel in the comparative quarter of 2021.
· Generated an operating netback of $37.55 per barrel, a 17 percent decrease from the second quarter of 2022 and a 35 percent increase from $27.77 per barrel in the third quarter of 2021, with the variances primarily attributed to movements in realized crude oil pricing.
· Recognized current income tax expenses of $1,381,000 in the quarter compared to $377,000 in the third quarter of 2021, driven by $1,173,000 in supplemental petroleum tax (“SPT”) expenses based on our average realized oil price exceeding the $75.00 per barrel threshold in the period.
· Our funds flow from operations was $290,000 in the quarter compared to $1,073,000 in the prior year equivalent quarter, and our year to date funds flow from operations increased 1 percent from the same period of 2021.
· Recognized a net loss of $778,000 in the quarter compared to a net loss of $51,000 reported in the same period of 2021, principally driven by higher current income tax expenses.
· Capital investments of $2,899,000 primarily focused on facility and pipeline expenditures related to the Coho-1 natural gas facility and investments directed to the Cascadura natural gas and liquids facility.
· Exited the quarter with cash of $8,732,000, a working capital deficit of $4,537,000 and a $28,500,000 term credit facility balance, resulting in a net debt position of $27,037,000.
Post Period-End Highlights
· Delivered first natural gas from the Coho facility on October 10, 2022, with net October sales over 19 operating days averaging 7.3 MMcf/d (1,212 boe/d).
· In conjunction with initial Coho production, we sold the gathering pipeline from our Coho facility to the third party natural gas facility for net proceeds of $1.2 million.
· Daily crude oil sales averaged 1,304 bbls/d in October 2022 with a realized price of $81.32 per barrel.
· Clearing of the surface location expansion area has been completed at the Cascadura facility site.
Financial and Operating Results Summary
Three months ended September 30,
Nine months ended
Average daily production (bbls/d)
Average daily production
Average realized prices(2) ($/bbl)
Realized commodity price
Operating netback ($/bbl)
Realized commodity price(2)
($000’s except per share amounts)
Cash from operating activities
Funds flow from operations
Per share – basic and diluted
Exploration capital expenditures
Development capital expenditures
Working capital deficit(2)
Principal long-term bank loan
Net debt(2) – end of period
Share Information (000’s)
Weighted average shares outstanding – basic and diluted
Outstanding shares – end of period
(1) References to crude oil production volumes in the above table and elsewhere in this announcement refer to light, medium and heavy crude oil product types as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. Our reported crude oil production is a mix of light and medium crude oil and heavy crude oil for which there is not a precise breakdown given our oil sales volumes typically represent blends of more than one type of crude oil.
(2) Non-GAAP financial measure. See “Advisories: Non-GAAP Financial Measures” for further information.
On October 10, 2022, we achieved first natural gas production from our Coho facility located on the Ortoire block, in which we have an 80 percent operating working interest. In conjunction with initial production, we sold the 2.7-kilometre, 6-inch gathering line tying in the Coho facility to the Baraka natural gas facility to The National Gas Company of Trinidad and Tobago Limited for net proceeds of $1,200,000.
Over 19 operational days in October, the Coho-1 well delivered average net October sales of 7.3 MMcf/d (approximately 1,212 boe/d) on a controlled choke. We will continue to optimize production from the well as conditions stabilize.
On August 16, 2022, we received a Certificate of Environmental Clearance to conduct development operations within the Cascadura area of the Ortoire block from the Trinidad and Tobago Environmental Management Authority. On September 15, 2022, we received approval from the Forestry Division of the Trinidad and Tobago Ministry of Agriculture, Land and Fisheries to commence lease building operations.
Work on the surface location is progressing, as the clearing of the lease expansion area has been completed, and we are currently levelling and preparing the area for pouring of the concrete foundation. Components for the facility are currently being fabricated by local contractors or being imported to Trinidad in completed form. Once the concrete foundation has been completed, delivery of the facility equipment will commence. We are currently targeting completion of the facility by the end of the first quarter of 2023.
Licences and work obligations
Under the terms of our lease operating agreements with Heritage Petroleum Company Limited (“Heritage”), we are required to fulfill minimum work obligations on an annual basis over the specific licence term. With respect to these obligations, we have four development wells and three heavy workover commitments to perform in 2022. Touchstone has notified Heritage its intent to defer the development drilling commitments to 2023.
We have completed all of our minimum work commitment obligations pursuant to our Ortoire block exploration and production licence. In March 2022, we were notified that the Trinidad and Tobago Ministry of Energy and Energy Industries approved an extension to the exploration period of the licence to July 31, 2026. The licence amendment agreement has been approved by the Trinidad and Tobago government and is awaiting formal execution. Upon execution, we will be required to drill three exploration wells prior to the end of the amended term.
Trinidad fiscal regime
In October 2022, the Trinidad and Tobago government proposed an amendment to the current SPT regime, allowing small onshore liquids producers to access the increased $75.00 SPT threshold incentive post 2022. If enacted, this fiscal measure will potentially reduce the SPT expenses applicable to liquids produced from our two Trinidadian subsidiaries in 2023 and beyond. More importantly, we welcome the news that an energy sector review will be performed and are hopeful that additional measures to support the Trinidad energy sector are considered.
Paul Baay, President and Chief Executive Officer, commented:
“The focus of the third quarter was the completion of the Coho natural gas facility which is currently on production, providing us with our first natural gas revenues in October. Our base oil production continues to generate positive operating cash flows while we progress on construction of the Cascadura natural gas and liquids facility. Production from our Cascadura discoveries will mark an inflection point for Touchstone, both from a cash flow and production volume basis. As we plan for our next stage of production growth, we are targeting further expansion of our onshore asset portfolio, through both the Trinidad 2022 onshore bid round and by considering other licence acquisition opportunities to expand our exploration and development acreage in prospective areas in Trinidad.”
Things are moving fast for TXP as this statement shows, Coho’s first gas and existing production is great news for shareholders and progress at the valuable Cascadura is being maintained. The upside for the company is very substantial indeed and I will add after further talks with Paul Baay.