Touchstone Exploration

First Interview with CEO Paul Baay

Good Morning Team.

Some of the best oil & gas bargains today are hiding in plain sight: well-known stocks with new production catalysts.

Touchstone Exploration is one of them.

For what it’s worth, five years ago Brent went negative for the first time ever during the initial pandemic madness. A couple of years later, Russia invaded Ukraine and subsequent sanctions saw Brent rise to an average of $100 per barrel in 2022.

Now we’re at $66 - profitable.

Looney’s cash machine? UK energy bills soaring? I remember one Citi analyst expecting 18% CPI in early 2023 - and while he might hope this prediction gets forgotten - the UK retains the highest energy bills in the developed world.

It would help if the current 78% effective tax rate on North Sea production - put in place during the exceptionally high pricing - were reduced, and perhaps allow operators to explore unhindered once again.

But while we wait for some common sense to arrive, the oil frontiers call.

This time last month, I was chatting to Afentra CEO Paul McDade - and a couple of weeks ago, United Oil & Gas CEO Brian Larkin. Wildly different businesses (a mid-tier producer vs an exploration micro-cap) though the first is up 30% and the latter 100% since.

These interviews were picked up by major media in their respective operating countries. And investors listened.

Shall we try for the hat-trick?

Introducing Touchstone Exploration.

You’re welcome to listen to the interview first before continuing.

As with all companies, we start with management.

CEO Paul Baay brings over two decades of leadership experience in the oil and gas sector to the table. Prior to joining Touchstone, he held key executive roles including Managing Director at Abacus Energy and founding President and CEO of True Energy.

His career also includes senior leadership at Remington Energy, Vero Energy and Request Seismic Surveys. In addition to his corporate success, the CEO is also engaged in the not-for-profit sector, serving on the boards of the National Gallery of Canada, the Council for Canadian American Relations, and the Rundle Mountain Charitable Foundation among others.

Under Paul’s guidance, Touchstone has sharpened its focus on the Trinidad and Tobago onshore natural gas and liquids plays, targeting assets that strengthen the company’s exposure to lucrative markets including LNG exports - complemented by a hands-on approach to risk management, ensuring that development programs are executed with cost control, reservoir management and capital efficiency.

For perspective, this focus was evident in the company’s response to drilling challenges at Cascadura-4, where operational setbacks were met with swift adaptation and equipment upgrades, minimising downtime.

And to be fair, across 2024 as a whole, Touchstone’s operational narrative was defined by a delicate balancing act - managing natural production declines in mature wells while investing in new development to sustain volumes.

The Cascadura field, the company’s flagship asset, experienced typical reservoir depletion effects, with natural gas and liquids production from the Cascadura-1ST1 and Cascadura Deep-1 wells declining steadily.

However, the commissioning of the Cascadura-2ST1 and Cascadura-3ST1 wells in November 2024 provided incremental production that partially offset these declines and are good examples of the development strategy - with the company deploying detailed reservoir modeling and advanced drilling techniques to maximize recovery from the existing field infrastructure.

Despite these efforts, average production figures fell to 4,317 boe/d in Q1 2025. Ergo, the stock has fallen by around 40% over the past 12 months - but this is an opportunity - as the production fall should be contextualized within the company’s broader transition toward incorporating new assets and repositioning its production base.

Let’s consider.

Financially, the decrease in production contributed to an 18% reduction in petroleum and natural gas sales to $11.11 million in Q1 2025 compared to $13.54 million in Q4 2024. Crude oil sales generated $6.68 million from average production of 1,162 barrels per day (bbls/d), realized at $63.86 per barrel, while natural gas sales amounted to $4.21 million from 18.7 million cubic feet per day (MMcf/d), priced at $2.50 per Mcf.

On the other hand, the company successfully implemented measures that reduced operating costs by 38%, including revisions to historical crude oil field head licence expenses. This efficiency gain contributed to an operating netback of $6.15 million despite lower revenues.

Funds flow from operations dropped to $2.58 million compared to $3.61 million in Q4, pressured by increased cash finance and general and administrative expenses but somewhat offset by lower transaction and income tax expenses.

The net earnings figure returned to positive territory, with a modest $41,000 profit compared to a loss of $542,000 in Q4 2024, which had been impacted by non-cash impairments and higher depletion charges.

Capital investment in the quarter was focused on advancing the Cascadura-4 well development, with $6.67 million spent despite operational interruptions caused by rig repairs and wellbore instability.

But bottom line, when an oiler starts to run out of oil, they need a new source. And generally, the initial transition from fading assets to new sources of revenue causes an entry opportunity - where sentiment falls before the cash flow starts to recover.

Transformational Acquisition

Enter stage right: last month’s acquisition of Shell Trinidad Central Block Limited is now the keystone to Touchstone’s strategic growth plan, representing not just an increase in production capacity, but a significant step towards both diversification and operational scale.

Completed for approximately $28.4 million in cash, the deal significantly expands the company’s asset base in Trinidad, providing a 65% participating interest in the onshore Central block exploration and production licence.

The Central block spans roughly 6,699 gross acres, with Touchstone’s net working interest at 4,354 acres. The asset portfolio includes four producing natural gas wells and an associated gas processing facility, delivering steady production averaging 17.5 MMcf/d of natural gas and 185 barrels per day of natural gas liquids early in 2025.

While these volumes are moderate, the block’s production is supported by well-maintained infrastructure and scope for near-term development through additional drilling opportunities.

And this acquisition clearly strengthens Touchstone’s onshore presence, while complementing its existing Ortoire and Cascadura assets.

And perhaps critically, the Central block’s gas is sold under contracts linked to Brent crude oil, Henry Hub natural gas and global LNG price benchmarks - significantly enhancing revenue upside potential compared to the company’s current fixed-price contracts in Ortoire, which offer less upside potential when global energy prices rise.

How significant?

Listen to the interview.

Very.

Given the growing global demand for LNG, especially in markets pivoting away from coal and oil toward cleaner energy, Touchstone’s expanded exposure via the Central block places the company at a strategic advantage - while the ability to tap into LNG-linked pricing offers increased revenue diversification and potential for higher cash flows during periods of commodity price volatility.

Management’s vision for the acquired assets is clear: integrate swiftly, optimise production through the drilling of two new development wells, and leverage the available gas processing and marketing infrastructure to maximize cash flow.

For context, it’s situated in a prolific onshore region of Trinidad - historically known for its stable production of natural gas and associated liquids, underpinned by mature reservoirs.

The acquisition also brings operational synergies, as the existing gas processing facility on the Central block should let the company optimise production flows and reduce third-party processing fees.

Beyond the immediate production and financial benefits, the acquisition also improves the company’s footprint in the Trinidad onshore energy landscape.

With a combined working interest spanning Ortoire, Cascadura, and now the Central block, Touchstone strengthens its operational presence and stakeholder relationships in the region, including with the state-owned Heritage Petroleum Company Limited, which holds the remaining 35% participating interest in the Central block.

Of course, relationships are critical for future exploration, development approvals, and ongoing operational collaboration, positioning Touchstone as a key (if niche) player in Trinidad’s natural gas industry.

Financial Position

To fund the new acquisition and required ongoing development (no point buying an asset you cannot develop further), the business has adopted a balanced capital strategy combining equity and debt financing.

In May 2025, the Company announced a private placement targeting UK investors, raising gross proceeds of approximately $20.5 million through the issuance of 75 million common shares priced at 20.5p (GBP) each.

Complementing the equity raise, the company also secured a new $30 million six-year non-revolving term loan facility through a Fourth Amended and Restated Loan Agreement with its existing Trinidad-based lender.

This facility includes no principal payments for the first eleven months and twenty-one equal quarterly repayments thereafter. Additionally, the longstanding revolving loan facility was extended by two years, with options for further renewal.

The combined proceeds from this debt facility and private placement ensured sufficient capital to close the STCBL acquisition and support ongoing operational needs, also positioning Touchstone to capitalise on near-term growth opportunities.

In other words - it’s fine for cash.

As with most UK upstream oil and gas companies not called BP or Shell, there’s always going to be some risks. Commodity price volatility, operational challenges including drilling delays or equipment failures (as experienced during Cascadura-4), and the typical uncertainties of reservoir performance and reserve estimates all feature.

There’s also understandable concerns over cash flow variability and the company’s capital structure - though the recent financing arrangements and asset diversification are designed to address these concerns.

The Bottom Line

Overall, Touchstone is back on a well-defined path toward sustainable growth. The acquisition of the Shell Trinidad Central Block is transformative, increasing the company’s production, operational scale, and market exposure, particularly into premium LNG-linked pricing.

Future development drilling on the Central block now offers near-term reserve additions, while ongoing operational efficiencies in Ortoire and Cascadura should slow natural declines and improve cash flow stability.

Investors looking for premium LNG-linked upside and an overlooked turnaround story may want to take a closer look.

Because soon, the market will price in this next chapter.