Mr. Scott Koyich reports
TRANSGLOBE ENERGY CORPORATION ANNOUNCES THIRD QUARTER FINANCIAL AND OPERATING RESULTS
TransGlobe Energy Corp. has released its financial and operating results for the three and nine months ended Sept. 30, 2011. All dollar values are expressed in United States dollars unless otherwise stated.
Highlights
- Record quarterly average production of 13,406 barrels of oil per day (bopd), up 13 per cent from second quarter 2011
(Egypt 11,138 bopd, Yemen 2,268 bopd);
- Record quarterly funds flow of $37.5-million (50 cents per share), a 28-per-cent
increase over second quarter 2011;
- Record quarterly net earnings of $26.1-million (35 cents per share), a 19-per-cent
increase over second quarter 2011;
- Drilled 14 wells in the third quarter resulting in 11 oil wells, one
water source well and two dry wells at West Gharib;
- Initiated a secondary recovery waterflood on the Arta/East Arta, Lower
Nukhul pool in early July;
- Expanded the company's opportunity base in the Western Desert by
acquiring a 50-per-cent interest and operatorship of the South Alamein
concession for $3.0-million;
- East Ghazalat Safwa field development plan approved in July, first
production targeted for second quarter 2012.
A conference call to discuss TransGlobe's second quarter results presented in this report will be held on Wednesday, Nov. 9, 2011, at 9 a.m. Mountain Standard Time (11 a.m. Eastern Standard Time) and is accessible to all interested parties by dialling 416-340-8530 or toll-free 1-877-240-9772 (see also TransGlobe's news release dated Nov. 2, 2011).
FINANCIAL AND OPERATING RESULTS
(In thousands of dollars except where indicated)
Three months ended Nine months ended
Sept. 30, Sept. 30,
2011 2010 2011 2010
Oil revenue $128,265 $66,470 $339,875 $189,661
Oil revenue,
net of
royalties and
other 71,769 38,980 187,145 112,022
Derivative
gain (loss)
on commodity
contracts (13) (221) (599) 68
Operating
expense 9,762 6,708 26,404 18,742
General and
administrative
expense 4,688 3,439 13,944 10,183
Depletion,
depreciation
and
amortization
expense 10,300 7,592 26,263 19,981
Income taxes 19,442 10,677 53,146 29,202
Funds flow
from
operations (i) 37,450 19,081 91,054 54,514
Basic per
share 0.51 0.28 1.26 0.82
Diluted per
share 0.50 0.28 1.22 0.80
Net earnings 26,110 9,321 50,873 31,633
Basic per
share 0.36 0.14 0.70 0.48
Diluted per
share 0.35 0.13 0.68 0.46
Capital
expenditures 20,160 19,001 59,544 46,266
Working
capital 164,132 47,862 164,132 47,862
Long-term
debt,
including
current
portion 57,303 49,977 57,303 49,977
Note
(i) Funds flow from operations is a non-IFRS (international
financial reporting standards) measure that represents cash
generated from operating activities before changes in non-cash
working capital.
OPERATING RESULTS
Three months ended Nine months ended
Sept. 30, Sept. 30,
2011 2010 2011 2010
Average
production
volumes
(bopd) 13,406 10,138 12,158 9,681
Average price
($ per bbl) $104.00 $71.27 $102.40 $71.76
Operating
expense ($
per bbl) 7.92 7.19 7.96 7.09
Corporate summary
TransGlobe Energy's total production increased to a record 13,406 barrels of oil per day (bopd) during the quarter, resulting in record funds flow of $37.5-million (50 cents per share, diluted) and record net earnings of $26.1-million (35 cents per share, diluted). The political environment in Egypt has stabilized, and business processes and operations are returning to normal. Yemen remains unsettled with export pipelines becoming a target for opposition tribes in the country. Production was restored in block S-1, Yemen, on July 16, 2011, and produced until Oct. 8, 2011, at which time it was shut in again due to attacks on the export pipeline.
The company continues to grow production and expand its opportunity base in Egypt. On the West Gharib project, 11 oil wells were drilled during the quarter and an additional six oil wells were drilled during October. The West Gharib project area is the primary producing asset in the company's portfolio.
The pending acquisition of 4,000 bopd in the West Bakr concession (100-per-cent WI (working interest)) announced March 25, 2011, will add a new project area adjacent to the West Gharib properties. There are numerous development opportunities and operational synergies expected from the acquisition. The company completed its due diligence and submitted the deed of assignment for government approval. Closing is scheduled to occur shortly after receiving all government approvals.
In the Western Desert, the East Ghazalat Safwa development was approved in July. The commencement of first production (approximately 800 to 1,200 bopd to TransGlobe) is expected in the second quarter of 2012.
The company entered into an agreement to acquire a 50-per-cent interest in its first operated project in the Western Desert of Egypt in the South Alamein concession. The acquisition includes a Cretaceous light oil discovery at Boraq 2X which will be appraised and developed in the near term. The acquisition is subject to the normal government approvals of the acquisition and approval of the Boraq development plan. The South Alamein concession is a large 558,000-acre exploration licence which has a number of prospects identified on 3-D seismic.
Brent oil prices remained strong, averaging $113 per barrel in the third quarter which resulted in an average sales price of $104 per barrel during the quarter. Record production combined with strong Brent oil pricing produced record funds flow of $37.5-million, to exit the quarter with positive working capital of $164-million and net long-term debt of $57.3-million.
Guidance for 2011 funds flow is expected to be approximately $120-million ($1.60 per share) based on production guidance of 12,000 to 12,300 bopd for 2011 and Brent pricing of $110 per barrel for the balance of the year.
With the additions of West Bakr and South Alamein total company production could reach 20,000 bopd in 2012.
The company has a very strong financial position and continues to pursue business development opportunities to expand its growing opportunity base.
Operations update
Arab Republic of Egypt
West Gharib, Arab Republic of Egypt (100-per-cent working interest, operated by TransGlobe)
Operations and exploration
Fourteen wells were drilled during the third quarter resulting in 11 oil wells, one water source well and two dry wells. Eight oil wells were drilled at Arta/East Arta, three oil wells and one water source well were drilled at Hoshia. Dry holes were drilled at West Hoshia and North Hoshia.
Six additional oil wells were drilled in the Arta/East Arta pools during October.
Two drilling rigs are scheduled to remain in the Arta/East Arta area for the balance of the year. The third rig (1,500 horsepower) will drill in the Arta/East Arta area until the drilling contract expires in December.
Production
Production from West Gharib averaged 11,138 bopd to TransGlobe during the third quarter, approximately 2 per cent (218 bopd) lower than the previous quarter. Production during the third quarter was curtailed by approximately 800 bopd due to process capacity constraints at the GPC-operated Ras Gharib terminal. By mid-July the increased trucked volumes at West Gharib were exceeding the process capacity to receive oil and water at the GPC-operated Ras Gharib terminal. The company initiated a number of projects to reduce the amount of water that is trucked with the oil to GPC and to increase tankage/processing capacity allocations at GPC. Depending upon government approvals for processing capacity allocations, the curtailed volumes could be placed on production by year-end.
Production in October averaged 10,912 bopd to TransGlobe with an estimated 1,000 bopd shut in. In early November production has increased to the 11,500 to 11,800 bopd range due to improved water separation in the field and the addition of new wells. With the recently drilled wells, it is estimated that 1,000 bopd remains shut in.
QUARTERLY WEST GHARIB PRODUCTION
(bopd)
2011 2010
Q3 Q2 Q1 Q4
Gross production rate 11,138 11,356 8,738 7,941
TransGlobe working interest 11,138 11,356 8,738 7,941
TransGlobe net (after royalties) 6,137 6,235 4,820 4,634
TransGlobe net (after royalties
and tax) (i) 4,247 4,306 3,293 3,338
Note
(i) Under the terms of the West Gharib production-sharing concession,
royalties and taxes are paid out of the government's share of
production-sharing oil.
West Bakr, Arab Republic of Egypt (subject to closing, 100-per-cent working interest, operated by TransGlobe)
On March 28, 2011, the company announced it had entered into a sale and purchase agreement (SPA) to acquire all the Egyptian assets of the Egyptian Petroleum Development Co. Ltd. (of Japan) (Epedeco) for $60-million plus or minus adjustments, effective July 1, 2010, subject to approval from the Egyptian government. Epedeco holds a 100-per-cent working interest in the West Bakr production-sharing concession (PSC).
The West Bakr PSC is located onshore in the Western Gulf of Suez rift basin of Egypt adjacent to TransGlobe's West Gharib concession and is producing approximately 4,000 bopd gross (before the production-sharing split with the government of Egypt). The company has identified a number of optimization/development projects and drilling opportunities that could increase production and recoverable reserves.
The produced oil ranges from 17-degree API to 20-degree API and is pipeline connected to the Ras Gharib terminal on the coast. The West Gharib production is currently trucked to the same terminal. The West Bakr blend has historically received Brent-minus-25-per-cent pricing.
TransGlobe has completed due diligence and submitted the deed of assignment for government approval. TransGlobe expects to close the acquisition shortly after receiving the necessary government approvals.
East Ghazalat block, Arab Republic of Egypt (50-per-cent working interest)
Operations and exploration
On July 12, 2011, the Safwa development lease was approved by the government. The Safwa development lease has a 20-year term (expires 2031) and covers approximately 11,040 acres or 15 development blocks. The Safwa development lease is subject to a four-year review (July 11, 2015) to determine which development blocks are producing or contributing to production. The non-producing (non-contributing) blocks will be relinquished following the review. The Safwa development lease could be extended an additional five years (2036).
The East Ghazalat exploration concession is in the first two-year extension period (expires June, 2012). An additional two-year extension is available following a relinquishment of 25 per cent of the original concession area. All work commitments have been met.
The operator has proposed an initial development budget of $2.6-million ($1.3-million to TransGlobe) to complete and equip the existing four wells for production. Processing facilities will be rented for the initial production phase until facility design and construction have been completed. Facility design work is expected to commence following the next drilling phase in 2012. The operator is targeting first production to commence in second quarter of 2012. It is expected that the wells will initially be capable of producing 400 to 600 bopd per well from the Bahariya formation, which could contribute an additional 800 to 1,200 bopd of light (34-degree API) sweet crude to the company.
South Alamein, Arab Republic of Egypt (subject to closing -- 50-per-cent working interest, operated by TransGlobe)
On June 29, 2011, the company announced it had entered into a sale and purchase agreement (SPA) to acquire Cepsa Egypt's 50-per-cent-operated working interest in the South Alamein concession for $3.0-million plus an inventory adjustment, effective on and subject to approval from the Egyptian government. El Paso South Alamein, a subsidiary of Houston-based El Paso Corp., holds the remaining 50-per-cent interest in the South Alamein production-sharing contract (PSC). Ancillary to this transaction is an agreement between TransGlobe and El Paso SA on a go-forward appraisal program in exchange for El Paso SA waiving its preferential right under its joint operating agreement with Cepsa Egypt. TransGlobe will assume operatorship of the South Alamein concession upon closing of this transaction.
The South Alamein concession is located onshore in the Western Desert of Egypt and includes portions of the prolific Alamein and Tiba basins. The current size of this exploration concession is 2,258 square kilometres (558,120 acres). The concession includes an oil discovery well, Boraq-2X, which tested a combined 1,700 bopd of 38-degree API to 40-degree API oil from two Cretaceous zones. Initial work by TransGlobe will focus on appraisal and development the Boraq-2X discovery which includes drilling at least two appraisal wells and readying the Boraq-2X well for production. The Boraq-2X discovery is close to existing infrastructure which should reduce development time and capital.
The company plans to submit a revised budget and development plan for the Boraq discovery to the Egyptian government for approval, following closing of the transaction.
The South Alamein PSC is in the first, three-year extension period which expires on April 5, 2012. A further two-year extension (April 5, 2014) is available following a 30-per-cent relinquishment of the original concession area. An extensive 3-D seismic acquisition program was executed over the entire South Alamein concession area. This has resulted in several well-defined prospects throughout the area and will provide TransGlobe with numerous exploration drilling opportunities. TransGlobe expects to carry out an exploration drilling program after the Boraq field is brought into production.
TransGlobe expects to close the acquisition after receiving the necessary Egyptian government approvals.
Nuqra block 1, Arab Republic of Egypt (71.43-per-cent working interest, operated by TransGlobe)
Operations and exploration
The 3.65-million-acre Nuqra block exploration concession is in the second and final extension period which is scheduled to expire in July, 2012. The company has met all the work commitments of the second extension period and has no plans for further exploration at this time.
Yemen East -- Masila basin
Block 32, Republic of Yemen (13.81-per-cent working interest)
Operations and exploration
No wells were drilled during the third quarter.
Production
Production from block 32 averaged 3,144 bopd (434 bopd to TransGlobe) during the quarter, representing an 8-per-cent decrease from the previous quarter primarily due to natural declines.
In October, production averaged approximately 2,935 bopd (405 bopd to TransGlobe).
Block 32 production is exported to the Indian Ocean via the Nexen-operated export pipeline which has not been impacted by recent political unrest in Yemen.
QUARTERLY BLOCK 32 PRODUCTION
(bopd)
2011 2010
Q3 Q2 Q1 Q4
Gross production rate 3,144 3,401 3,869 4,206
TransGlobe working interest 434 470 534 581
TransGlobe net (after royalties) 259 263 241 344
TransGlobe net (after royalties
and tax) (i) 201 195 135 265
Note
(i) Under the terms of the block 32 PSA, royalties and taxes are paid
out of the government's share of production-sharing oil.
Block 72, Republic of Yemen (20-per-cent working interest)
Operations and exploration
The government has approved a six-month extension to the second exploration period and has extended the expiry date to Jan. 11, 2012. All work commitments of the second exploration period have been completed.
Yemen West -- Marib basin
Block S-1, Republic of Yemen (25-per-cent working interest)
Operations and exploration
No wells were drilled during the quarter.
Production
Production averaged 7,336 bopd (1,834 bopd to TransGlobe) during the third quarter with the export pipeline in operation from July 15, 2011, to the end of the quarter.
Subsequent to the quarter, production averaged approximately 1,680 bopd (420 bopd to TransGlobe) during October which was impacted by the shut-in of the export pipeline on Oct. 8. The oil export pipeline from Marib to the Ras Eisa port on the Red Sea remains shut down. Production from TransGlobe's An Nagyah field on block S-1 is shut-in until repairs to the export pipeline can be completed. The pipeline has been the target of a number of attacks since production resumed in mid-July (ending a four-month shut-in period) and was typically repaired within 24 to 48 hours, which did not impact production. The most recent attacks on the pipeline have not been repaired due to local tribal groups preventing access to the pipeline. It is difficult to predict when production will resume. TransGlobe's working interest share of production was approximately 2,250 bopd prior to being shut in on Oct. 8.
QUARTERLY S-1 BLOCK PRODUCTION
(bopd)
2011 (ii) 2010
Q3 Q2 Q1 Q4
Gross production rate 7,336 - 7,784 9,068
TransGlobe working interest 1,834 - 1,946 2,267
TransGlobe net (after royalties) 1,097 - 1,003 1,188
TransGlobe net (after royalties
and tax) (i) 907 - 758 895
Notes
(i) Under the terms of the S-1 block PSA, royalties and taxes are paid
out of the government's share of production-sharing oil.
(ii) Production shut in from March 17, 2011, to July 15, 2011.
Subsequently shut in on Oct. 8, 2011.
Block 75, Republic of Yemen (25-per-cent working interest)
Operations and exploration
The PSA for block 75 was ratified and signed into law effective March 8, 2008. The first three-year exploration phase has a work commitment of 3-D seismic and one exploration well. The 3-D seismic was acquired in 2009. One exploration well was planned as part of the 2011 block S-1/75 drilling program. With the suspension of the block S-1/block 75 drilling program in the first quarter of 2011, the operator has declared force majeure under the PSA due to logistics and security concerns associated with the suspended drilling program.
We seek Safe Harbor.
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