Touchstone Exploration Q3 preview: stronger wells, weaker earnings

Analysis and forecast. This article interprets Touchstone’s operational update of 29 October 2026. The Q3 financial estimates below are my assumptions, not company-reported results or guidance.

What did Touchstone Exploration report today?

Touchstone Exploration has reported early success from two wells, better reliability from its Cascadura compressor and average third-quarter sales production of 4,485 barrels of oil equivalent per day.

Today's announcement is an operational update, not the full Q3 financial report. It nevertheless gives us the production mix needed to form a more informed view of what the November results may look like.

The main points were:

• CR-3 Karamat completion: the well produced separate gross average gas test rates of approximately 5.0 MMcf/d and 6.8 MMcf/d at different choke settings during extended testing. Touchstone owns 65% of the Central block. The rates are preliminary, testing is continuing and they should not be treated as stabilized production.
• PS-623 at WD-4: wireline interpretation indicated approximately 450 feet of potential net hydrocarbon pay. The well entered production at an initial field-estimated flush rate of approximately 387 bbl/d during its first 24 hours, with a 1% water cut. Touchstone owns 100% of WD-4, but the company expects this initial rate to decline as the well settles.
• Cascadura compressor: uptime availability improved to approximately 98% in September. Gross Cascadura gas production increased from approximately 9.7 MMcf/d in July to 12.5 MMcf/d in August and 13.0 MMcf/d in September.
• More work is planned: Touchstone intends to complete three Cascadura optimization workovers before year-end, while a second WD-4 well is expected to spud shortly. The drilling contractor is covering the second well's turnkey drilling cost.

The operational direction is positive. CR-3 may open a new Karamat development opportunity, PS-623 adds oil production and the compressor is finally operating close to its uptime target. The important caution is that the two well rates are early test or flush figures, not long-term production guidance.

Q3 production was steady, but the mix changed

Touchstone's Q3 sales volumes averaged 4,485 boe/d, only 1% above the 4,433 boe/d reported in Q2. The composition changed more meaningfully:

Production measure	Q3 2026	Q2 2026	Change
Total production	4,485 boe/d	4,433 boe/d	+1%
Natural gas	19,354 Mcf/d	17,590 Mcf/d	+10%
Crude oil	837 bbl/d	1,032 bbl/d	-19%
Condensate and other NGLs	422 bbl/d	469 bbl/d	-10%
Total crude oil and liquids	1,259 bbl/d	1,501 bbl/d	-16%

That mix matters because one barrel of oil equivalent does not imply an equivalent amount of revenue. Q3 contained more gas and materially less crude oil than Q2.

July also benefited from unusually strong Central block gas pricing. During the Atlantic LNG Train 4 maintenance period, Central gas was redirected to the Train 2/3 contract. Touchstone estimated a net price of $10.28 per Mcf for July. From 2 August, those volumes returned to the cheaper Train 4 contract.

This means reported production was fractionally higher, but the average value of each boe is likely to have fallen.

My Q3 2026 prediction

This is my base-case estimate, not company guidance. All financial amounts are in US dollars.

Metric	Q3 2026 estimate	Q2 2026 actual
Production	4,485 boe/d, reported today	4,433 boe/d
Petroleum and natural gas sales	approximately $15.4m, range $14.9m to $16.0m	$17.5m
Operating netback	approximately $19.50/boe	$24.37/boe
Funds flow from operations	approximately $5.1m, range $4.3m to $5.9m	$7.1m
Net income	approximately breakeven to $1.0m profit	$2.3m profit
Net debt	approximately $59m	$68.7m

I expect Q3 to look weaker than Q2 despite the small increase in total production. My sales estimate is about 12% below Q2, while my funds-flow midpoint is about 28% lower.

These estimates are especially sensitive to the realized price of Central block gas, royalties, the Trinidad liquids discount to Brent, operating costs and the exact timing of capital spending and bank repayments.

Why I expect sales and netback to fall

There are two main reasons for the expected earnings decline.

First, Q2 and the start of Q3 benefited from the temporary Train 2/3 gas contract. Touchstone's combined Q2 gas price was $4.93 per Mcf, with Central block gas averaging approximately $6.56 per Mcf. July's Central volumes were stronger again at an estimated $10.28 per Mcf, but the return to Train 4 from 2 August removes most of that temporary pricing advantage.

Second, crude oil sales fell from 1,032 bbl/d in Q2 to 837 bbl/d in Q3. That 19% decline reduces exposure to the highest-value part of Touchstone's production mix. Condensate and other NGL volumes also declined.

September's oil price was supportive. The US Energy Information Administration reported an average Brent spot price of approximately $114 per barrel for the month. However, only part of the quarter captured that strength, Touchstone sells its crude at a discount to benchmark and Q3 crude volumes were lower.

Taken together, I estimate an operating netback of about $19.50/boe. That would remain comfortably above the $13.73/boe achieved in Q1, but below Q2's exceptional $24.37/boe.

Net debt should fall, but mainly because of the Purebond conversion

My estimated Q3 net debt is approximately $59m, down from $68.7m at the end of Q2.

The largest reason is the post-quarter conversion of the $8.4m Purebond debenture into common shares. This removed the short-term debt liability, but it was a debt-for-equity transaction rather than organic debt reduction generated by the business.

The final number will depend on operating cash flow, capital expenditure and scheduled bank repayments. I estimate quarter-end cash at approximately $6m to $7m, compared with $9.2m at the end of June.

Going concern: I expect the material uncertainty to remain

My base case assigns about a 75% probability to Touchstone retaining the material uncertainty related to going concern in its Q3 accounts. This percentage is a judgement call, not a statistical forecast.

The Q2 accounts retained the warning even after the company had raised $10.2m and obtained a waiver of the debt service coverage ratio covenant through 31 December 2026. Today's announcement contains no new lender agreement and no material VAT cash receipt.

The main pressures are:

• approximately $14.2m of scheduled bank debt principal repayments were due over the 12 months following 30 June 2026;
• acquisition consideration payable of approximately $8.6m was recorded as a current liability at Q2;
• approximately $11.1m of VAT receivables remained outstanding;
• my Q3 cash estimate is only approximately $6m to $7m; and
• I estimate the Q3 working-capital deficit at about $12m after allowing for the Purebond conversion and quarter movements. This is my estimate, not a company-reported Q3 figure.

Touchstone's 2025 accounts said the company projected possible breaches at 31 December 2026 of both its debt service coverage covenant and its net senior funded debt to trailing annual EBIDA covenant. The debt service coverage covenant has been waived for 2026. I have not seen a disclosed 2026 waiver for the debt-to-EBIDA covenant.

For me, removal of the material uncertainty becomes more likely if the Q3 report includes a new lender amendment or waiver, a meaningful VAT recovery, or another clear source of committed liquidity. Stronger operating performance alone may not be sufficient because the scheduled obligations are large relative to my estimated cash balance.

For the detailed Q2 numbers, see my earlier analysis of Touchstone Exploration's Q2 2026 results.

The operational update improves the Q4 outlook

The stronger part of the story begins after the Q3 cut-off.

CR-3 and PS-623 both entered testing or initial production in October, so they should make little or no contribution to the Q3 financial result. If their rates stabilize at commercial levels, they could improve Q4 production and cash generation.

The Cascadura compressor's 98% September availability is also encouraging. Touchstone still has three planned Cascadura workovers, a Baraka-1 workover and the second WD-4 well to execute. These activities create several possible production catalysts, although they also carry execution, decline-rate and funding risk.

The high September Brent price provides a more favourable backdrop for liquids. It does not remove the balance-sheet issue, but sustained oil pricing combined with stable new-well production would improve the company's ability to meet its obligations from operating cash flow.

What I will look for in the Q3 results

Touchstone has not yet announced the Q3 reporting date. Last year's Q3 results were published on 13 November, so mid-November 2026 is a reasonable expectation rather than a confirmed date.

The most important disclosures will be:

1. the realized Central block gas price after the return to Train 4;
2. quarter-end cash, bank debt and acquisition consideration payable;
3. capital spending and the amount of cash used by the WD-4 programme;
4. any VAT receipts received after quarter-end;
5. the exact going-concern and covenant wording;
6. stabilized production and decline data from CR-3 and PS-623; and
7. the timing and funding of the remaining 2026 workovers.

Today's update is operationally encouraging. It supports a stronger Q4 production case, but my Q3 base case remains more cautious: lower sales, lower netback and lower funds flow than Q2, with the going-concern material uncertainty likely to remain.

Sources: Touchstone's 29 October operational update, the September operational update, the Q2 2026 results, the 2025 annual results and the EIA October 2026 oil-market review.