Touchstone Exploration (TSX:TXP) — Investor Presentation

0:00 Morning, and welcome to the TOUCHSTONE EXPLORATION INVESTOR PRESENTATION. Throughout this quarter presentation, investors will be in listen only mode. Before we begin, I'd like to submit the following poll. And I'd now like to hand you to Paul Bay, CEO. Good morning, Chisel. Thank you very much, and welcome to the call. As mentioned, I'm Paul Bay, CEO of TOUCHSTONE, and I'm here in Trinidad meeting with, various of our stakeholders. And I'm pleased to have the opportunity to talk to you following the recent announcement that the board of directors of both Touchstone and Trinity in that they've agreed to the terms of a

0:31 recommended all share offer for the combination of both companies. This will see Touchstone acquire the entire issued and to be issued ordinary share capital of Trendy. Before I start, I'd just like to take a minute for everybody to take a a quick look at the couple of slides of disclaimers that we have.

0:57 On slide four, we outlined some of the key details of the transaction. It's an all share offer that will leave TOUCHSTONE shareholders owning approximately 80% of the combined group. And as such, the TOUCHSTONE board management and listing will all be retained. Trinity shareholders will represent approximately 20% of the resulting combined group. We'll go into more details throughout the presentation, but we believe that this deal presents a compelling strategic opportunity, which will deliver three things, enhance scale, balance sheet strength and growth opportunities for both sets of shareholders. It also adds offshore assets to our portfolio, adding an exciting opportunity to add to our growth profile. The funds flow from operations, Trinity brings will allow us to invest in a broader portfolio of development opportunities across a much larger portfolio and accelerate the potential of the asset base of both companies.

1:57 The deal has the unanimous recommendation of the Trinity Board and the support of 38.9% of the shareholders of Trinity. We expect the deal will be completed by the end of Q3 twenty twenty four. Moving on to Slide five, I'll take you through the strategic and financial rationale in more detail. Simply put, it adds scale, strength and growth. We believe this combination between the two companies is a compelling opportunity for both sets of shareholders, both from an operational and a financial perspective. Firstly, the acquisition will create a leading Trinidad operator of scale with a significant uplift in production and reserves. Production will increase to between approximately eleven thousand seven hundred and twelve thousand four hundred BOEs per day based on the 2024 production guidance from both companies.

2:52 With combined 12/31/2023 gross proved plus probable reserves of approximately 80,000,000 BOEs. In addition to this, the proposed deal will enhance TOUCHSTONE's exploration and development portfolio for the combined group and will be able to benefit from Trinity's attractive portfolio of prospects. Together, the combined portfolio provides a diversified opportunity for TOUCHSTONE with the potential to materially enhance the long term value of the company. The combined group will have a strong operational cash flow generation. Trinity expects to report 2023 operating cash flow between $10,000,000 and $12,000,000 and TOUCHSTONE is guiding to 2024 funds flow of 32,000,000 As such, the group's combined funds flow from operations will provide Touchstone with the resources, capacity and flexibility to invest in multiple development programs concurrently and to accelerate the growth pipeline that we have of our assets.

3:54 In addition to accelerating and allowing greater flexibility around the drilling program, the enhanced cash flow potential will allow greater optionality over capital allocation decisions. Similarly, the knowledge and experience of Trinity staff is highly complementary to TOUCHSTONE and will allow the combined group to benefit from a best mix of skills and experience to create an efficient business. From a financial perspective, there are some obvious benefits to the deal. Importantly, we expect the acquisition to be accretive on a funds flow basis in the first full year after completion, even before the realization of any synergies. We believe it'll be possible to realize significant cost synergies and benefit from economics of scale.

4:42 For a start, there'll be certain levels of duplication and overhead, costs associated with Trinity's public listing and the two businesses fixed in office costs. Wider synergies will be confirmed following a post closing integration review process. We believe we will be able to integrate and operate the enlarged portfolio of assets with limited additional overhead to TOUCHSTONE's current cost base, representing significant reduction in corporate overheads on a pro form a combined basis. We believe the portfolio of assets post completion will give shareholders a more balanced exposure to both oil and gas commodity prices as Trinity assets are 100% oil. Lastly, we are confident that the broader shareholder base and the increased size of the company, the combined group will benefit from increased liquidity.

5:34 Moving on to the next slide, on Slide six. On this slide, we wanted to provide you with a brief overview of where TOUCHSTONE stands today. We are already the largest independent onshore oil and gas producer in Trinidad. We own and operate a significant amount of inch infrastructure on the island, some of which have just been brought on in the last couple of years, and have publicly outlined our long term ambition to fill our 42,333 BOE per day of processing capacity through a mixture of development, exploration, and mergers and acquisitions. Our assets comprise several large high quality reserves, including the highly successful Orotov Block, which we have operated since 2014, and is an exciting area and one in which we have experienced an 80% exploration success rate.

6:24 For 2024, we have stated average production guidance between 9,109 thousand 700 BOEs per day, while our forecast 2024 exit rate is expected to be 14,500 BOEs per day. This is being driven by our active 2024 capital program focused on development and some exploration, which is being funded by our organic funds flow and the recently signed loan extension providing additional $13,000,000 in borrowing capacity or 13,000,000 in additional liquidity. Our existing production together with the ex with that expected to be brought online during the current year means that in total, in 2024, we were guiding to funds flow from operations of approximately $32,000,000.

7:10 This is USDs that we're speaking of here. Looking forward, we have a substantial land package totaling around a 150,000 net acres of potential land holdings across Trinidad and is laid out on our capital markets day back in September of last year. The TOUCHSTONE team have done a fantastic job in identifying two twenty nine drilling locations across the land package with about 25 priority targets within that portfolio. Slide seven, if we take a look at Trinity, Trinity operates and produces and develops assets from both onshore Trinidad and in the shallow water offshore, the East And West Coast Of Trinidad. It has a production profile with very low decline rates, and it has multiple exploration prospects and low risk development opportunities.

7:57 The company has 10 licenses, including three operating and seven sublicenses off the East And West Coast Of Trinidad. Its assets represent aggregate production of approximately 2,700 barrels of oil per day. Alongside this is an attractive development portfolio of growth prospects, which include both onshore and offshore potential and represent an estimated amount by management of 2P reserves of 12,900,000 barrels as at 12/31/2023. Trinity has profitable and cash generation operations with estimated EBITDA of $18,500,000 and operating cash flow between 10,000,000 and $12,000,000 for the year ended 12/31/2023 and net cash of 4,600,000 as of 03/31/2024.

8:47 Slide eight gives us a visual idea of what the combined group would look like in terms of the land package within Trinidad and shows the breadth of the portfolio of opportunities available to the combined group. We believe that this map represents a leading oil and gas operator of significant scale with growth potential for an enhanced and expanded portfolio. Slide seven and eight really demonstrate to me the potential of the combined entity has. It offers scale, and growth. On Slide nine, we see the example of a strong pro form a production base of between approximately eleven thousand seven hundred and twelve thousand four hundred BOEs a day based on the combined forecast average of twenty twenty four production of both companies.

9:34 This is a great platform from which TOUCHSTONE can continue to be ambitious on both development and exploration. The deal will create a business with strong combined funds flow for operations to invest in multiple concurrent development and exploration programs and accelerate the potential of the broader asset base, while providing for greater optionality over capital allocation decisions to allow for sustainable approach to future share shareholder distributions. This opportunity is underpinned by the potential for significant recurring cost synergies that we believe will lead to greater funds flow or cash flow generation and shareholder value. All of these combined create a Trinidad oil and gas business of scale that is ready for future growth.

10:22 On Slide 10, we can see the pro form a combined group in terms of some key figures. I hope this demonstrates the immediate uplift the deal will give shareholders in terms of operating metrics, as well as the future potential of the reserves and asset base. As you can see in the transaction delivers increased reserves, production and land holdings. On Slide 11, we've outlined the key terms of the deal. As I mentioned at the beginning of the presentation, the Trinity directors are unanimously recommending this all share offer and have signed irrevocables to support it. The TOUCHSTONE board also believes that it makes compelling strategic and financial sense, enhancing our ability to deliver growth and reserves, production and cash flow for the benefit of the shareholders and the stakeholders.

11:09 Under the terms of the combination, Trinity shareholders shall be entitled to receive 1.5 new TOUCHSTONE shares for each Trinity share. Upon completion, Trinity shareholders will hold approximately 20% of the enlarged company. The combination represents a total implied value of 61.9p per share per Trinity share, valuing the entire issued share capital at Trinity at approximately 24.5 sorry, £24,100,000 or US $30,000,000. It also rents represents a premium of approximately 72% to the closing price per Trinity share of 36p on 04/30/2024. This premium falls significantly to 13.6% when you look at the premium against a longer term nine month VWAP.

12:01 There will be no change to the name or the combined group. It will continue as touchstone under the ticker symbol of TXP, both in Toronto and on the exchange. Here we see a bit more detail on Slide 11 on the offer process and the key milestones through to completion. We currently expect the deal to be completed by the end of Q3 twenty twenty four, subject to the satisfaction of the necessary conditions and approval. The scheme document will contain the full terms and conditions of the acquisition as well as a timetable of principal events and will be published in due course. Trinity will then have a general meeting where their shareholders will vote on the transaction. It will also need to be approved by the relevant regulatory and Trinidadian government bodies before the scheme is sanctioned by the courts.

12:48 Once these milestones have been met, the offer will be effective. At that point, Trinity shares will be delisted. The new TOUCHSTONE shares will be issued and admitted for trading. We will keep investors updated as we progress and when there is more clarity on the closing timetable. Slide 13. So finally, to summarize, we believe this acquisition makes compelling strategic sense for a number of reasons. Firstly, we believe the combination of both these companies will create a leading independent E and P in Trinidad and leading onshore Trinidad operator with pro form a 2024 production between approximately eleven thousand seven hundred and twelve thousand four hundred BOEs per day. Secondly, the transition transaction will provide us with enhanced combined annual funds flow for operations, underpinned by potentially significant reoccurring annual synergies, which TOUCHSTONE intends to invest in the exploration and development prospects across the larger enhanced portfolio.

13:51 This will accelerate the development of the combined group with the potential to materially enhance long term shareholder value. Thirdly, we expect the acquisition to be accretive on a funds flow from operating basis in the first full year after the completion, and that is before taking into account the expected cost synergies. Scale, strength, growth, that is what this deal is about. I hope you share the excitement that we feel at the prospect of this combination. Thank you very much for taking the time to join us for the presentation today.