Touchstone Exploration Reports Q3 2025 Net Loss and Revises 2025 Guidance Lower

Balance sheet and financing: more leverage, runway extended

• Net debt rose to $77.75 million, reflecting a three-year secured convertible debenture issued in August 2025. The Debenture bears 5% interest and is convertible at roughly US$0.22 per share, with 6,250,000 warrants at C$0.40 for two years.
• Post period, the Company raised about $9.1 million (£7 million) via a 63.6 million share placing at 11 pence.
• Following the raise, the lender granted a waiver of the debt service coverage ratio test for the year to 31 December 2025.

These moves ease near-term covenant pressure but come alongside a going concern statement. As at 30 September, working capital was a deficit of $16.74 million (excluding the debenture). Management is relying on VAT receivable collections and incremental production to bridge the gap, and it is prepared to adjust activity or pursue further funding if needed.

Cascadura-5: a lower-rate start, but a valuable new oil clue

Cascadura-5 came onstream on 1 November and is averaging roughly 2.4 MMcf/d of gas and 106 bbls/d of 26-degree API oil – about 506 boe/d gross through a 70% choke, with no water. That is well below the prior 30‑day expectation of ~3,108 boe/d gross (17.0 MMcf/d and 275 bbls/d of liquids).

The twist: for the first time at Cascadura, Touchstone has encountered medium-gravity crude oil. Management believes a lower sand is contributing an oil leg, and it has identified additional intervals to perforate in Cascadura‑2ST1 and Cascadura‑5. These can be accessed at minimal cost without a service rig, which is helpful given liquidity constraints.

Compression at the Cascadura gas facility remains on schedule for Q2 2026. All Cascadura wells are expected to benefit, potentially lifting rates and recoveries.

Central field: outperforming and getting more drilling attention

The Central asset continues to exceed acquisition expectations. The drilling rig is being mobilised to a new Central location to target a previously identified gas zone with bypassed pay potential, with any success tied into existing processing in Q1 2026. Management plans up to four more development wells and may fracture-stimulate two existing wells over the next phase.

October 2025 production averaged 4,691 boe/d, down 3.3% from September due to two days of planned maintenance at the Central facility. The mix was 19.7 MMcf/d gas (3,289 boe/d) and 1,402 bbls/d of oil and liquids.

2025 guidance cut: lower output and cash generation, higher costs

• Average 2025 production reduced to 4,700 boe/d (from 5,000 boe/d midpoint). Gas trimmed to 20,100 Mcf/d; liquids guidance nudged slightly lower.
• Funds flow from operations now $4 million (from $6 million).
• Capital expenditures raised to $27 million (from $26 million).
• Expected year-end net debt increased to $69 million (from $65 million).
• Cost assumptions stepped up: 2025 operating expenses to $8.20/boe (from $7.60), G&A to $6.10/boe (from $5.70), cash finance to $2.70/boe, and current tax to $1.00/boe.

The reset is driven by Cascadura‑5’s early underperformance. Management also notes it is working with the National Gas Company of Trinidad and Tobago to improve Cascadura gas pricing, which currently does not reflect development intensity or peer pricing.

Strategic moves: portfolio tidying and asset-backed consideration

Touchstone agreed to sell the non-core Fyzabad property to a Trinidad-based third party in exchange for three turnkey wells on the WD‑8 and WD‑4 blocks. Fyzabad contributed just 49 bbls/d in Q3, and the property carried $2.59 million in net liabilities classified as held for sale. The deal requires customary approvals.

Why it matters for investors

• Margin pressure is the near-term issue. Netbacks fell on higher operating costs, and that fed straight through to sharply lower funds flow.
• Cascadura‑5’s oil leg is a genuine positive surprise. Oil is roughly four times more valuable than gas on a per‑boe basis at current pricing, so successful optimisation could have an outsized impact even from modest rates.
• Liquidity remains tight. The debenture, equity raise, and covenant waiver provide breathing room, but the going concern disclosure underscores the need for execution and timely VAT receipts.
• Upcoming compression and Central drilling are tangible catalysts. Compression in Q2 2026 and near‑term Central activity could improve rates and cash generation if results cooperate.

My view: cautious near term, optionality if optimisation works

Q3 shows a business that is producing steadily but not yet converting that into strong cash flow. The guidance cut and higher unit costs are clear negatives, and the balance sheet needs careful handling. On the other hand, Central continues to deliver, Cascadura now has an oil angle to exploit, and low-cost perforations offer a fast way to test that thesis.

For me, the watch list is simple: 1) perforation results at Cascadura‑2ST1 and Cascadura‑5, 2) Central well performance and tie‑in timing in Q1 2026, 3) any progress on gas price renegotiation, and 4) VAT collections and cash discipline. Delivering on these could stabilise net debt and rebuild confidence. Until then, risk sits higher than usual, but so does the operational leverage to better well performance and pricing.

Glossary quick hits

• Operating netback: sales minus royalties and operating costs – a field-level margin per barrel equivalent.
• Funds flow from operations: cash generated by operations before working capital movements and non‑cash items; a proxy for the cash available to fund capex and service debt.
• Debt service coverage covenant: a lender test that compares cash flow to debt service. A waiver means the lender will not test it for the specified period.
• Choke: a surface valve controlling well flow. A “70% choke” indicates a relatively open setting to regulate rates and pressures.