Touchstone Exploration Secures £15M Funding to Fuel Trinidad Gas Expansion

Touchstone Exploration Inc. (TSX: TXP; AIM: TXP) has taken significant steps to bolster its financial position and advance its growth strategy through a £15.375 million private placement and a binding term sheet for acquisition financing. The moves aim to fund a transformative acquisition of Shell’s Trinidad Central Block assets, which could position the company as a key player in Trinidad’s gas sector.

Private Placement Details: Balancing Growth and Dilution

The private placement, led by OAK Securities, issued 75 million new common shares at 20.5 pence (C$0.38) each—a 11.8% discount to the May 7 AIM closing price. The placement will dilute existing shareholders by 24.1% post-transaction, with shares expected to list on TSX and AIM by May 15. Proceeds will fund critical development projects, including the completion of Cascadura-4ST1 and Cascadura-5 wells, tie-ins, and two Central block development wells.

The financing underscores management’s confidence in the company’s growth trajectory. However, investors must weigh the dilution against the long-term value of the acquisitions. A closer look at Touchstone’s stock performance reveals its volatility:

Acquisition Financing: A $30M Loan to Close the Shell Deal

The cornerstone of Touchstone’s strategy is its acquisition of Shell Trinidad Central Block Limited (STCBL), which holds a 65% stake in Trinidad’s Central block. The $23 million cash purchase is supported by a $30 million six-year term loan from Republic Bank Limited (RBL). The loan, once finalized, will provide ample liquidity to complete the deal and fund post-acquisition activities.

The STCBL assets include four producing gas wells, a processing plant, and estimated proved reserves of 3.2 MMboe as of April 1, 2025. Total proved reserves stand at 5.1 MMboe, with proved plus probable reserves reaching 5.6 MMboe. At a 10% discount rate, the before-tax NPV10 of the proved reserves is $41.7 million, rising to $95.5 million for proved plus probable reserves. These figures suggest the acquisition could significantly enhance Touchstone’s asset base and future cash flows.

Strategic Rationale: Unlocking Trinidad’s Gas Potential

The acquisition’s most compelling feature is STCBL’s gas sales structure, which differs from Touchstone’s existing Trinidad operations. While Touchstone’s current contracts are fixed-price, STCBL’s gas revenues are tied to global benchmarks like Brent oil, Henry Hub, and LNG prices. This variable pricing could amplify profit margins if commodity prices rise—a favorable scenario in a tightening energy market.

Post-acquisition, Touchstone aims to boost production to 8,000–9,000 boe/d by late 2025 through well optimization and two new development wells. If achieved, this would nearly double the company’s current output, positioning it as a top-tier gas producer in Trinidad.

Risks and Considerations

Despite the opportunities, risks remain. Regulatory delays, currency fluctuations (with exchange rates at £1 = US$1.38 and C$1.84), and commodity price volatility could impact execution. Additionally, the accuracy of reserve estimates hinges on the acquisition’s completion, introducing contingent liability risks.

Conclusion: A Strategic Gamble with High Upside

Touchstone’s moves represent a calculated bet on Trinidad’s gas market, leveraging low-cost financing and a favorable reserve valuation. The £15 million private placement and $30 million term loan provide a robust capital stack to execute the STCBL acquisition, which carries a conservative NPV10 of $41.7 million for proved reserves alone.

With production targets of 8,000–9,000 boe/d by year-end 2025, Touchstone could realize substantial cash flow growth if commodity prices hold. While dilution and execution risks exist, the acquisition’s scale and strategic alignment with global gas demand trends make it a pivotal move. Investors should monitor the stock’s post-listing performance and regulatory approvals closely—success here could redefine Touchstone’s valuation.

The company’s ability to convert reserves into production at scale will be the ultimate test. With Trinidad’s gas sector poised for growth and Touchstone’s financial levers now in place, the stage is set for a critical chapter in its history.