Touchstone Exploration Q2 Results - Is the bottom in?

The Touchstone Exploration Q2 Results

You don’t need to be an accountant to read that these results aren’t great. I have to admit, following the news of the convertible debenture the previous day – I thought we could see the share price go on a bit of a tear. We saw it trade at 16p the day before the results, for it to drop down to 13.5p on the results.

Touchstone desperately needs momentum and sustained success. Right now the market is punishing it for it’s historic operational failures (I know – let’s switch to water based mud)!

Have a read through the numbers below…

Category	Metric	Current	Previous	Change	% Change	Status
👑 Royalty	Royalty expense ($/boe)	$6.63	$7.25	▼ $0.62	−8.6%	✅ Positive
⚙️ Operating	Operating expense ($/boe)	$8.28	$4.81	▲ $3.47	+72.1%	❌ Negative
📊 Netback	Operating netback ($/boe)	$12.59	$16.44	▼ $3.85	−23.4%	❌ Negative
💰 Sales	Petroleum & natural gas sales	$11.01m	$14.09m	▼ $3.08m	−22.0%	❌ Negative
💵 Cash flow	Funds flow from operations	$1.43m	$3.97m	▼ $2.54m	−64.0%	❌ Negative
📈 Earnings	Net (loss) earnings	($0.71m)	$3.34m	▼ $4.05m	N/A	❌ Negative
🏗️ Capex	Capital expenditures	$4.66m	$5.54m	▼ $0.88m	−16.0%	⚠️ Mixed
💳 Debt	Net debt (end of period)	$63.89m	$28.67m	▲ $35.21m	+123%	❌ Negative
🏦 Working Capital	Working capital deficit	$11.82m	$2.67m	▲ $9.14m	+342%	❌ Negative

What Q2 actually showed for TXP

Average production was 4,399 boe/d versus 5,432 boe/d a year ago, with natural gas at 69% of the mix. Petroleum and natural gas sales were $11.0m, operating netback totalled $5.0m, funds flow from operations was $1.43m, and the quarter landed at a net loss of $0.71m. The squeeze came from lower sales and higher gas-related operating expenses, which pushed unit operating costs to $8.28/boe.

Central Block mattered immediately. Although TXP only booked ~45 days of contribution post close, those barrels (1,910 boe/d over the post-acquisition period) were pivotal in cushioning declines elsewhere and, crucially, broadened market access beyond Trinidad’s domestic petrochem and power buyers.

By July, field-estimated production had stepped up to 5,281 boe/d, split 22.3 MMcf/d of gas and 1,564 bbls/d of oil and liquids. That aligns closely with management’s recent comment that production has stabilised around the 5,300 boe/d mark

The LNG angle and pricing

Strategically, Central Block opens the door to LNG-linked pricing from 2027. Management framed this as a structural upgrade to TXP’s realised prices over time, decoupling part of the portfolio from the historically constrained domestic market. In Q2, though, gas realised $2.55/Mcf, a nudge higher year on year but still reflective of Trinidad’s current price environment. The medium-term prize is the shift of volumes into higher-priced LNG contracts post May 2027. (Realised Q2 gas price cited above from the RNS; LNG timing and mechanism as outlined in the 18 Aug presentation).

Costs, cash, and the capital stack

Let’s talk balance sheet. Net debt at quarter end was $63.9m, reflecting the acquisition and the new $30m term facility. Working capital was a deficit of $11.8m, which management intends to chip down with post-period financings and operating cash generation.

Post quarter, TXP raised $12.5m via a convertible debenture and warrants with a Canadian investor; the lender provided written confirmation that these proceeds satisfy an equivalent portion of the equity raise requirement in the loan agreement. That is helpful, but not the end of the story: the company still plans an additional $7.3m equity raise before year-end to meet the loan covenant framework. There’s also a disclosed risk that the convertible could trigger a breach of the net senior funded debt to trailing EBIDA ratio absent a waiver by the 31 December 2025 test date. Management intends to seek that waiver – and also is exploring varous options here.

On the liquidity side, a few smaller but relevant notes. Trinidad’s VAT situation continues to unwind gradually: TXP received $2.96m in 4.01% government VAT bonds earlier in 2025 and collected $724k of past-due VAT in H1. Accounts receivable climbed with growth and the acquisition, including taxes that, under the SPA, are remitted to the seller only upon collection. These items don’t fix cash overnight, but they are moving in the right direction.

The Positive Catalysts

Simply put, the next 6 months is absolutely crucial for Touchstone Exploration. They simply have to deliver operationally. There can be no dropping of any balls – there’s no runway. Cas-4 has to be drilled without a mistake, and hooked up efficiently.

Area	Milestone	Target Date	What to Watch	Expected Impact	Signal
Cascadura	Cascadura-4 onstream	Oct 2025	IP rate, uptime, decline profile	Higher volumes; spreads fixed opex	✅ Positive
Cascadura	Cascadura-5 onstream	Oct 2025	Flow efficiency, tie-in readiness	Further production lift; netback expansion	✅ Positive
Central Block	Development well spud	Q4 2025	Well placement, drilling days, costs	De-risks inventory; sets up 2026 growth	✅ Positive
Central Block	First production	Early 2026	Facility uptime, water handling	Incremental cash flow; portfolio balance	✅ Positive
Compression	Cascadura compression online	Q2 2026	Line pressure stability, downtime	Predictable declines; “+1 well” equivalent	✅ Positive
Pricing	LNG-linked sales commence	May 2027	Contract terms, nominated volumes	Step-change in realised gas pricing	✅ Positive (medium-term)
Financing	Equity raise or covenant waiver	By 31 Dec 2025	Size, pricing, lender confirmation	De-risks balance sheet; removes overhang	⚠️ Mixed
VAT	VAT refunds progress	Ongoing	Bond receipts, cash collections	Improves liquidity; funds capex	✅ Positive

Guidance reset and what’s changed for 2025

The acquisition forced a pragmatic reset to 2025 guidance. TXP now guides 5,300-5,900 boe/d for the year (midpoint 5,600), 74% gas, funds flow of c.$11m, and year-end net debt near $64m. That’s a downshift from the pre-acquisition production plan, but one that deliberately trades early Cascadura drilling for Central Block integration plus development at WD-8. The strategic bet is that a more balanced programme and improved market access set the stage for steadier cash flows into 2026.

Operationally, the second half pivots to delivery. The updated plan swaps two Cascadura wells for one Central Block development well and two WD-8 wells this year, with a compression project at Cascadura expected to complete in Q2 2026. Management’s latest commentary points to Cascadura-4 and -5 coming onstream by October 2025, Central Block development starting before year-end with first production in early 2026, and a busy three-year runway of up to ten new wells across Cascadura and Central Block. (Programme changes and compression timing per RNS; specific onstream targets and well count from the 18 Aug presentation.)

Compression is not glamorous, but it’s material. Smoothing line pressures at Cascadura and Central Block should add the equivalent of another well’s output and, importantly, make declines more predictable. TXP has budgeted roughly $2.6m for Cascadura compression in H2 2025 with completion targeted in Q2 2026.

Costs also look set to normalise. Central Block’s inherited cost base is being aggressively trimmed. Management flagged monthly opex falling from c.$1.5m to a $350k-500k run rate as staffing, water disposal, and legacy facilities are rationalised. While that’s presentation guidance rather than audited history, the direction of travel matters: combine a lower fixed-cost platform with compression and new wells, and your per-unit economics improve quickly as volumes fill the system.

Is the bottom in?

If you had to make me chose yes or no, I would choose yes. However it would be heavily caveated.

On fundamentals, Q2 probably marks the trough for reported netbacks and funds flow, provided TXP executes the H2 plan: bring CAS-4 and CAS-5 on, kick off Central Block development, and stay on track with compression. The July production step-up to ~5.3k boe/d and management’s “production stabilised” message support that view.

On valuation, investors tend to bottom-fish when two conditions are met: operations stop surprising negatively and financing visibility improves. TXP is halfway there. The operational roadmap for the next 100 days is clear and catalyst-rich. Financing visibility is improving, but not fully settled.

My bias, wearing the pragmatic small-cap hat: if TXP delivers the October onstreams and lands either the waiver or the equity raise on acceptable terms, Q2 will read in hindsight as the point where operating momentum and strategic positioning started to outweigh the noise. If slippage emerges on either front, the market will demand a bigger risk premium and the bottom-call gets deferred.

In other words, we’re close. Execution now decides whether Q2 was the trough in both numbers and narrative. For investors comfortable underwriting near-term operational delivery and a modest financing step, the asymmetry looks better today than it did pre-acquisition. For everyone else, the catalyst calendar between now and year-end offers a clear checklist to replay the trade with more information as each box gets ticked.

Hopefully, we get to eat a few cookies before we end up looking like the below image….