Touchstone Exploration’s 2025 scorecard: pivot to drilling, LNG exposure, and a frank liquidity warning
Touchstone Exploration has released audited 2025 numbers and Q4 details. It was a mixed year: a strategic acquisition delivered LNG-linked gas and base production, but overall volumes and pricing weakened, squeezing cash generation. The company also flagged material uncertainties around going concern, driven by debt loads and covenant headroom. Here is what stood out and why it matters for investors.
Headline numbers you should know
| Metric | Q4 2025 | FY 2025 | FY 2024 |
|---|---|---|---|
| Average production | 4,877 boe/d | 4,686 boe/d | 5,734 boe/d |
| Petroleum & natural gas sales | $11.00 million | $45.82 million | $57.47 million |
| Operating netback | $4.22 million | $21.26 million | $32.89 million |
| Funds flow from operations | $0.62 million | $5.37 million | $16.75 million |
| Net income | $13.62 million | $10.89 million | $8.27 million |
| Capital expenditure | $7.44 million | $28.38 million | $23.68 million |
| Net debt (year end) | – | $72.89 million | $29.11 million |
Notes: “Operating netback” is field profit before corporate costs – sales less royalties and operating expenses. “Funds flow from operations” is a cash-like measure before working capital swings.
Production and pricing: gas-heavy mix, lower netbacks
- Q4 2025 production averaged 4,877 boe/d, down 8% year-on-year. The Central field contributed 2,065 boe/d, underlining the impact of the 2025 acquisition.
- Full-year production averaged 4,686 boe/d, down 18% as natural declines at Cascadura and mature oil fields outweighed new Central volumes.
- Product mix remained gas-weighted at 71% natural gas in both Q4 and full-year. Realised prices softened for liquids – crude at $59.45/bbl (down 12%) and NGLs at $33.67/bbl (down 51%) – while gas edged up to $2.59/Mcf.
- Operating netback per boe fell to $12.44 in 2025 from $15.68, reflecting lower realised prices and higher operating costs per unit.
Opinion: The acquisition cushioned declines but could not fully offset them. With 71% gas, Touchstone is leveraged to gas price improvement and to volumes from Central and Cascadura development drilling in 2026.
Cash flow and profit: tax recovery flatters earnings
- Revenue declined 20% to $45.82 million. Funds flow from operations dropped 68% to $5.37 million as netbacks compressed and finance costs rose.
- Despite weaker cash generation, reported net income improved to $10.89 million, largely due to non-cash items – a $12.61 million deferred tax recovery and a $4.98 million gain on the Fyzabad asset swap.
- Cash from operating activities increased to $20.13 million, helped by favourable working capital movements.
Opinion: The accounting profit is not the same as cash strength. The key swing factor for 2026 will be whether development wells lift netbacks and funds flow enough to cover capex and debt service.
Central block acquisition: LNG-linked gas and base production
- Closed 16 May 2025 for $28.40 million cash, funded by a new $30 million six-year term loan.
- Delivers a 65% operated interest, four producing gas wells, and a processing facility. Average production since closing was 2,095 boe/d of liquids-rich gas with exposure to global LNG pricing.
- From acquisition to year end, the asset contributed $9.28 million of sales and a net loss of $0.75 million as integration and costs ramped.
Opinion: Strategically sound – low-decline base gas and LNG linkage – but it increases financial leverage and raises the bar for execution on drilling and facility optimisation.
Capital programme and portfolio moves
- 2025 capex of $28.38 million, pivoting from infrastructure build to active drilling, including three gross (2.25 net) development wells. Q4 spend focused on the CR-3 well on Central.
- Rationalised the portfolio by divesting Fyzabad for drilling services, unlocking a $4.98 million gain and concentrating capital on higher-return assets.
- Health and safety performance was strong – zero lost-time injuries in 2025.
Balance sheet and liquidity: material uncertainties flagged
- Year-end net debt rose to $72.89 million, up from $29.11 million a year earlier, reflecting the acquisition, capex and a new $12.5 million convertible debenture.
- Bank debt principal stood at $57.75 million across three term loans and a fully drawn $10 million revolver. A formal waiver covered a 2025 covenant breach on net senior funded debt to EBIDA.
- Working capital deficit was $15.4 million excluding the convertible debenture, with $12.79 million of bank debt amortisation due within 12 months.
- Going concern note: management projects a breach of net senior funded debt to trailing annual EBIDA and debt service coverage covenants as at 31 December 2026, which could make bank debt due at that time.
Management’s mitigation levers are clear: grow operating cash flow via the 2025-2026 drilling programme, accelerate VAT receipts, and negotiate covenant amendments or waivers. If required, capex can be optimised and further debt or equity raised.
Opinion: The liquidity signal is the biggest overhang. Delivery from new wells and timely VAT collections need to show up before year end 2026, and lender engagement will be crucial.
Pricing, costs and what moved the dial
- Q4 realised prices: crude $54.57/bbl, NGLs $30.30/bbl, gas $2.54/Mcf.
- Q4 operating netback per boe fell to $9.41 from $14.17 due to lower sales and higher gas operating expenses.
- Annual operating expense per boe rose to $7.62 from $5.10, reinforcing the focus on scale and facility efficiency.
Capital structure updates worth noting
- Convertible debenture: $12.5 million, 5% coupon, maturing August 2028, convertible at approximately US$0.22 per share, plus 6,250,000 warrants at C$0.40 expiring in 2027.
- Equity: two private placements raised $13.60 million net in 2025. Shares outstanding at year end were 324,733,609.
Key positives
- Central block acquisition adds scale, low-decline base gas and LNG-linked pricing exposure.
- Portfolio clean-up and a pivot back to drilling should translate to near-term production catalysts.
- Strong HSE record and tax recovery supporting book earnings.
Main watch-outs
- Leverage and liquidity: net debt of $72.89 million and a working capital deficit, with covenants likely to be tight in 2026.
- Execution risk: 2026 development programme must deliver to meet debt service and reduce covenant pressure. Touchstone is required to drill seven development wells in 2026 and is committed to four, with discussions ongoing for the rest.
- Regulatory timing: two exploration wells are required on Ortoire before the exploration phase expires in July 2026. An extension is being discussed.
What to watch next
- Results from the CR-3 well and the broader 2026 drilling programme across Central and Cascadura.
- Operating netback progression as new volumes enter and facilities are optimised.
- VAT collection cadence and any updates on covenant amendments or waivers with the lender.
- Commodity price backdrop, especially LNG-linked realisations for Central gas.
Bottom line
Touchstone’s 2025 added the right kind of barrels – steady, LNG-linked gas – but the financial picture is dominated by leverage and covenant headroom. If the 2026 drill-bit delivers and lender support is secured, the enlarged base could compound nicely. Until then, this is a higher-risk, catalyst-driven story where execution and cash conversion need to do the talking.
