Mr. Scott Koyich reports
TRANSGLOBE ENERGY CORPORATION ANNOUNCES FIRST QUARTER 2012 FINANCIAL AND OPERATING RESULTS
TransGlobe Energy Corp. is providing its financial and operating results for the three months ended March 31, 2012. All dollar values are expressed in United States dollars unless otherwise stated.
Highlights:
- Record first-quarter average production of 16,720 barrels of oil per day (Egypt, 16,423 barrels of oil per day; Yemen, 297 barrels of oil per day), a 39-per-cent increase over fourth-quarter 2011;
- First-quarter funds flow of $36.1-million (48 cents per share), a 36-per-cent increase
over fourth-quarter 2011;
- First-quarter net earnings of $18.8-million (25 cents per share), prior to a
$7.8-million (10-cent-per-share) non-cash unrealized loss on financial
instruments (convertible debentures) resulting in reported net earnings
of $11.0-million (15 cents per share);
- Drilled nine wells in the first quarter, resulting in nine oil wells at West
Gharib;
- Raised gross proceeds of $97.8-million through a convertible
debenture offering in February;
- Announced $15.0-million share purchase agreement (May 1, 2012) to
acquire interests in South Alamein and South Mariut;
- Increased capital budget to $89.3-million (an increase of $13.6-million).
A conference call to discuss TransGlobe's 2012 first-quarter results presented in this news release will be held Monday, May 7, 2012, at 9 a.m. Mountain Time (11 a.m. Eastern Time) and is accessible to all interested parties by dialling 1-416-340-2216 or toll-free 1-866-226-1792 (see also TransGlobe's news release dated May 1, 2012). The webcast may be accessed on-line.
TransGlobe Energy's
annual general meeting of shareholders:
-
Tuesday, May 8, 2012, at 3 p.m. Mountain Time,
Bow Glacier room, Centennial Place West, third floor, 250-5th St. SW, Calgary, Alta.,
Canada.
FINANCIAL AND OPERATING RESULTS
(in thousands of U.S. dollars, except per share, price,
volume amounts and per cent change)
Three months
ended March 31,
2012 2011
Financial
Oil revenue $159,426 $97,995
Oil revenue, net of royalties and other 77,212 52,863
Derivative gain (loss) on commodity
contracts (124) (551)
Operating expense 11,966 7,547
General and administrative expense 6,688 4,506
Depletion, depreciation and amortization
expense 11,749 7,760
Income taxes 21,585 16,535
Funds flow from operations (i) 36,088 24,930
Basic per share 0.49 0.35
Diluted per share 0.48 0.34
Net earnings 10,975 2,889
Basic per share 0.15 0.04
Diluted per share 0.15 0.04
Capital expenditures 4,472 20,307
Working capital 263,693 135,283
Long-term debt, including current portion 57,910 56,731
Convertible debentures 105,835 -
Total assets 648,012 404,184
(i) Funds flow from operations is a measure that represents cash
generated from operating activities before changes in non-cash
working capital and may not be comparable with measures used by
other companies.
OPERATING
Average production volumes (bopd) 16,720 11,218 49
Average price ($ per bbl) 104.78 97.06 8
Operating expense ($ per bbl) 7.86 7.48 5
Corporate summary
TransGlobe Energy's total production increased to a record 16,720 barrels of oil per day during the quarter. This record was largely due to the recent acquisition of the West Bakr properties in the Gulf of Suez region adjacent to the company's West Gharib properties. One of the company's contracted drilling rigs has recently started drilling the first of three wells on the West Bakr properties. The political environment in Egypt continues to improve and business processes and operations are proceeding as normal. Yemen is still unsettled and the company has 2,250 barrels of oil per day shut-in on block S-1 since Oct. 8, 2011. Although the company expects the situation in Yemen will be resolved and production will resume, it is difficult to predict when.
The focus of the 2012 drilling program will be primarily on the West Gharib/West Bakr properties in the first half and with several development and appraisal wells in the East Ghazalat and South Alamein projects slated for the second half.
The pending acquisition of the South Alamein and South Mariut concessions announced May 1, 2012, will add two new project areas in the Western Desert region of Egypt. There are numerous exploration and development opportunities and operational synergies expected to arise from the acquisition. Closing could occur as early as June.
Also in the Western Desert, plans are under way to bring the East Ghazalat Safwa discovery into production in 2012. The commencement of first production (approximately 800 barrels of oil per day to 1,200 barrels of oil per day to TransGlobe) is expected by the third quarter.
All of the company's production is priced to Dated Brent and shared with the respective governments through production-sharing agreements. When the price of oil goes up, it takes fewer barrels to recover costs (cost recovery barrels are assigned 100 per cent to the company), which generally results in more production-sharing oil or profit oil. Production-sharing oil is split with the respective government. The splits are fixed for the life of the contract and do not change with the price of oil. During times of increased oil prices, the company receives less cost oil and more production-sharing oil (or profit oil). During times of increased oil prices, the government receives more production-sharing oil due to lower-cost oil. For reporting purposes, the company records the respective government's share of production as royalties and taxes (all taxes are paid out of the government's share of production).
Dated Brent oil prices were strong during the quarter at $118.49 per barrel in the first quarter. The West Gharib/West Bakr crude is sold at a quality discount to Dated Brent and received $104.78 during the quarter. The company had funds flow of $36.1-million and closed a $97.8-million convertible debenture financing to exit the quarter with positive working capital of $263.7-million and long-term debt and convertible debentures of $163.7-million.
The company had net earnings in the quarter of $11.0-million, which was net of a $7.8-million non-cash unrealized loss on financial instruments (convertible debentures). The $7.8-million loss represents a fair value adjustment in accordance with international financial reporting standards, but does not represent a cash expense or an increase in the future cash outlay required to pay back the convertible debentures.
Subsequent to the quarter, the company has collected $30.1-million of receivables in Egypt.
The company has a very strong financial position and is working on several business development opportunities in Egypt to expand its opportunity base.
Operations update
Arab republic of Egypt
West Gharib, Arab republic of Egypt (100-per-cent working interest, TransGlobe operated)
Operations and exploration
During the first quarter, nine oil wells were drilled, resulting in nine Nukhul oil wells in the Arta/East Arta pools. Subsequent to the quarter, three additional oil wells were drilled, resulting in three Nukhul oil wells in the Arta/East Arta pools. In April one of the drilling rigs was moved to the West Bakr concession, where it is currently drilling. One drilling rig is currently drilling at West Gharib primarily focused on the Nukhul formation in the Arta/East Arta pools.
Production
Production from West Gharib averaged 12,065 barrels of oil per day to TransGlobe during the first quarter, a 7-per-cent (785-barrel-of-oil-per-day) increase over the previous quarter. Production increases in the quarter are attributed to improved water separation in the field and to new wells. The company commissioned a new multiwell battery in the Arta field during the second week of December, which has improved water separation in the field and increased oil sales. The company continues to progress a number of facilities projects, including a new multiwell battery at Hoshia to reduce the amount of water trucked with the oil and to increase tankage/processing capacity allocations at the General Petroleum Corp. terminal. The company has temporarily deferred completion of new wells which require fracture stimulation until additional capacity is available at the GPC terminal.
Production averaged 12,052 barrels of oil per day to TransGlobe during April. It is estimated that approximately 500 barrels of oil per day of production remains curtailed in April due to facility constraints. Of the 12 wells drilled in 2012, 10 wells are awaiting completion and stimulation. It is estimated that 2,000 barrels of oil per day of additional production inventory exists from these 10 wells. The estimate is based on historical performance from Upper Nukhul producers which have averaged 200 barrels of oil per day during the first 90 days of production following fracture stimulation. The wells will be completed and brought into production to offset natural declines and as additional capacity becomes available at the GPC terminal.
QUARTERLY WEST GHARIB PRODUCTION (BOPD)
2012 2011
Q1 Q4 Q3 Q2
Gross production rate 12,065 11,280 11,138 11,356
TransGlobe working interest 12,065 11,280 11,138 11,356
TransGlobe net (after royalties) 6,581 6,255 6,137 6,235
TransGlobe net (after royalties and tax) (i) 4,536 4,358 4,247 4,306
(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 (100-per-cent working interest, TransGlobe operated)
As announced Jan. 3, 2012, TransGlobe West Bakr Inc., a wholly owned subsidiary of TransGlobe Energy Corp., acquired all the Egyptian assets of the Egyptian Petroleum Development Co. Ltd. (of Japan) (EPEDECO) on Dec. 29, 2011.
Operations and exploration
Since closing at year-end 2011, the company has moved quickly to integrate the West Bakr staff and operations into the TransGlobe Egypt operations. Working with the company's new joint venture operating company (West Bakr Production Co.), an initial three-well drilling program was prepared and approved. The initial three-well program is targeting approximately 1,500 barrels of oil per day (500 barrels of oil per day per well) of new production. No wells were drilled in West Bakr during the first quarter.
Subsequent to the quarter, the company moved a drilling rig from the adjacent West Gharib concession and drilling commenced in late April in the H field.
In addition to the initial drilling program, an additional nine drilling targets have been identified. It is expected that the initial three-well program will be expanded during the year. If a drilling rig is kept in West Bakr for the balance of the year it is estimated that approximately 10 to 12 wells could be drilled in the area in 2012.
Concurrently, a workover/recompletion program targeting an additional 1,500 barrels of oil per day was prepared and presented for approval. The first recompletion was completed in late April, resulting in an initial increase in production of approximately 300 barrels of oil per day.
Based on the initial drilling and recompletion opportunities at West Bakr it is expected that production could increase to the 6,000-barrel-of-oil-per-day to 8,000-barrel-of-oil-per-day range over the next 12 months. This would exceed the current West Bakr sales capacity at the GPC terminal which is estimated at approximately 6,000 barrels of oil per day so additional facilities optimization would be required at the GPC terminal.
Concurrent with production and reserve growth initiatives, the company initiated an engineering study to identify and assess potential infrastructure synergies between West Bakr and the adjacent West Gharib operations. The initial study is focused on the utilization of excess processing and export pipeline capacity in the West Bakr concession to maximize the oil delivered to GPC and to reduce trucking expense. In addition, the company is working with GPC and Egyptian General Petroleum Corp. to expand existing export capacity and secure alternate sales points within the existing government-run infrastructure.
The produced West Bakr oil ranges from 17-degree to 20-degree API and is pipeline connected to the GPC-operated Ras Gharib terminal on the coast. The West Gharib production is currently trucked to the same terminal. The West Bakr blend has historically received Dated Brent minus 22-per-cent to 25-per-cent pricing.
Production
Production from West Bakr averaged 4,358 barrels of oil per day to TransGlobe during the first quarter. Production averaged 4,314 barrels of oil per day to TransGlobe during April.
QUARTERLY WEST BAKR PRODUCTION (BOPD)
2012 2011
Q1 Q4 (i) Q3 Q2
Gross production rate 4,358 138 - -
TransGlobe working interest 4,358 138 - -
TransGlobe net (after royalties) 1,239 45 - -
TransGlobe net (after royalties and tax) (ii) 926 35 - -
(i) Purchased Dec. 29, 2011; includes three days of production.
(ii) Under the terms of the West Bakr production-sharing concession,
royalties and taxes are paid out of the government's share of production-
sharing oil.
East Ghazalat block, Arab republic of Egypt (50-per-cent working interest)
Operations and exploration
No wells were drilled during the first quarter.
On July 12, 2011, the Safwa development lease was approved by the government of Egypt. The Safwa development lease has a 20-year term expiring in 2031 and covers approximately 11,040 acres or 15 development blocks. The Safwa development lease could be extended an additional five years to 2036.
The East Ghazalat exploration concession is in the first two-year extension period which 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 commenced a work plan to complete and equip the existing four wells for production commencing by the end of the second quarter.
It is expected that the existing wells will initially be capable of producing 400 barrels of oil per day to 600 barrels of oil per day per well from the Bahariya formation, which could contribute an additional 800 barrels of oil per day to 1,200 barrels of oil per day of light, sweet crude (34-degree API) to the company by the end of the second quarter.
South Alamein, Arab republic of Egypt (subject to closing -- 100-per-cent working interest, TransGlobe operated)
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. The Cepsa asset purchase is conditional upon government approval of a deed of assignment. The deed of assignment was signed by EGPC in late March and has been sent to the Minister of Petroleum for final approval.
On May 1, 2012, the company announced it has entered into a share purchase agreement to acquire companies which hold a 50-per-cent interest in the South Alamein production-sharing concession and hold an operated 60-per-cent working interest in the South Mariut PSC. It is expected that the corporate purchase could close in early June.
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 gross size of this exploration concession is 1,423 square kilometers (355,832 acres) following a 25-per-cent relinquishment of non-prospective acreage on April 4, 2012, and moves the concession into the final two-year exploration phase. The concession includes an oil discovery well, Boraq-2X. The primary Cretaceous zone tested at a rate of 800 barrels of oil per day to 1,323 bopd of 34 API oil with no water and a 13-per-cent pressure drawdown. Test rates are not necessarily indicative of long-term performance but it is anticipated that when combined with secondary tested zones within the Cretaceous, the well should be capable of initial production of approximately 1,700 barrels of oil per day. Initial work by TransGlobe will focus on appraisal and development of the Boraq-2X oil 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. An extensive 3-D seismic acquisition program was acquired over the entire South Alamein concession area. TransGlobe's technical team has identified six, drill-ready prospects on the remaining exploration lands. Drilling on these prospects is planned for the 2013 exploration program.
The company plans to submit a revised budget and development plan for the Boraq discovery to the Egyptian government for approval following the closing of the Cepsa transaction which is expected to occur in the second quarter of 2012.
South Mariut, Arab republic of Egypt (subject to closing -- 60-per-cent working interest, TransGlobe operated)
On May 1, 2012, the company announced it has entered into a share purchase agreement to acquire companies which hold a 50-per-cent interest in the South Alamein PSC and hold an operated 60-per-cent working interest in the South Mariut PSC. It is expected that the corporate purchase could close in early June, subject to a waiver or non-exercise of a 30-day preferential right of purchase held by the remaining 40-per-cent working interest joint venture partner at South Mariut.
The South Mariut concession is located in the Western Desert of Egypt and is onshore along the Mediterranean coastline, adjacent to prolific offshore hydrocarbon fields and southwest of the city of Alexandria. The southern boundary of the South Mariut concession is approximately 20 kilometres north of the South Alamein concession. The current gross size of this exploration concession is approximately 3,350 square kilometres (approximately 828,000 acres). The South Mariut concession is in the first, three-year extension period which expires on April 5, 2013. A further two-year extension is available under the production-sharing contract.
The South Mariut partners have acquired approximately 1,200 square kilometres of 3-D seismic over the original area and executed several studies supporting the prospectivity of the South Mariut concession area. The joint venture partners have approved (subject to rig availability) a $9.6-million exploration well (Al-Azayem-1) for 2012. The current operator has received all the necessary approvals and is in discussion with several contractors to supply a 2,000-horsepower drilling rig. The well is targeting several stacked horizons with four-way closures identified on 3-D seismic, with total depth expected at approximately 14,500 feet in the Jurassic formation. TransGlobe has internally estimated a combined 236 million barrels gross of undiscovered petroleum initially in place on a probabilistic P-mean basis for this prospect.
The South Mariut concession production-sharing terms are as follows: cost oil of 35 per cent, sharing of profit oil with 18 per cent to the contractor, 82 per cent to the government of Egypt, with 100 per cent excess cost recovery oil to the government. Capital investments are amortized over five years and operating costs are fully recovered in the quarter incurred and paid. All taxes and royalties are paid out of the government's share of profit oil.
Nuqra block 1, Arab republic of Egypt (71.43-per-cent working interest, TransGlobe operated)
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 first quarter.
Production
Production sales from block 32 averaged 2,151 barrels of oil per day (297 barrels of oil per day to TransGlobe) during the quarter. Actual field production averaged 2,695 barrels of oil per day (372 barrels of oil per day to TransGlobe) which is approximately 18 per cent lower than the previous quarter due to natural declines and shut-in production during February. Production was shut-in from Feb. 14 to Feb. 17 due to a labour strike at the Petro Masila-operated export pipeline system.
Production averaged approximately 2,773 barrels of oil per day (383 barrels of oil per day to TransGlobe) during April.
Effective Jan. 1, 2012, the block 32 joint venture partnership terminated the crude oil marketing agreement with Nexen and entered into a marketing agreement with Arcadia Marketing Pte. of Singapore. The first-quarter production is the average of the crude oil which was sold during the quarter. The balance of the production will be sold in the subsequent quarter. It is expected that sales and production will vary quarter to quarter due to the reduced frequency of tanker liftings associated with the volumes marketed by Arcadia.
QUARTERLY BLOCK 32 PRODUCTION (BOPD)
2012 2011
Q1 Q4 Q3 Q2
Gross production rate 2,151 3,276 3,144 3,401
TransGlobe working interest 297 452 434 470
TransGlobe net (after royalties) 166 254 259 263
TransGlobe net (after royalties and tax) (i) 120 188 201 195
(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 operator received a nine-month extension to Sept. 11, 2012, for the second exploration period. The joint venture partners approved one contingent exploration/appraisal well for 2012. The well is subject to further technical evaluation of the original discovery well at Gabdain No. 1 and logistic/security issues in Yemen.
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 from TransGlobe's An Nagyah field on block S-1 has remained shut-in since the export pipeline from Marib to the Ras Eisa port on the Red Sea was damaged Oct. 8, 2011.
The pipeline has not been repaired due to local tribal groups preventing access to the pipeline. Typically the pipeline can be repaired within 24 to 48 hours once access to the pipeline has been obtained. TransGlobe's working interest share of production was approximately 2,250 barrels of oil per day prior to being shut-in on Oct. 8, 2011.
QUARTERLY BLOCK S-1 PRODUCTION (BOPD)
2012 2011
Q1 Q4 Q3 Q2
Gross production rate - 736 7,336 -
TransGlobe working interest - 184 1,834 -
TransGlobe net (after royalties) - 93 1,097 -
TransGlobe net (after royalties and tax) (i) - 69 907 -
(i) Under the terms of the block S-1 PSA, royalties and taxes are paid out
of the government's share of production-sharing oil.
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; however, the drilling program was cancelled in the first quarter of 2011 due to logistics and security concerns. The first exploration phase has been extended to March 9, 2013.
We seek Safe Harbor.
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