TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX:
TGL) (NASDAQ: TGA) is pleased to announce its financial and
operating results for the three and six month periods ended June
30, 2010. All dollar values are expressed in United States dollars
unless otherwise stated. The conversion to barrels of oil
equivalent ("Boe") of natural gas to oil is made on the basis of
six thousand cubic feet of natural gas being equivalent to one
barrel ("Bbl") of crude oil.
HIGHLIGHTS
- Second quarter production 9,206 Bopd (Egypt 6,631 Bopd, Yemen
2,575 Bopd);
- Second quarter funds flow of $17.0 million ($0.25/share), a
21% increase over second quarter 2009;
- Second quarter net income of $9.4 million ($0.14/share),
compared to a $4.4 million loss in the second quarter 2009;
- Drilled eight wells in second quarter resulting in seven oil
wells (five at West Gharib, one at East Ghazalat and one at Block
S-1);
- Expanded fracture stimulation program at Arta, first
multi-staged horizontal frac in Egypt and two additional vertical
fracs during the second quarter;
- Expanded the Nukhul play at West Gharib with multiple fields
to delineate and develop with fracture stimulations (Arta, Hoshia,
North Hoshia, East Arta, South Rahmi);
- New pool Nukhul oil discovery at East Arta #4;
- Entered into a new five-year $100.0 million Borrowing Base
Facility; and
- Increased the capital budget for 2010 from $63.0 million to
$71.0 million, which represents a 100% increase over 2009 and is
powered by new production, higher realized oil prices and the
continued success in Egypt.
Corporate Summary
The West Gharib project area of Arab Republic of Egypt ("Egypt")
continues to be a star performer in the Company's portfolio and is
expected to remain the focus for continued production and reserves
growth. The Company continued its development of the Arta field
during the second quarter of 2010, with one horizontal and two
vertical wells frac'd. The Nukhul Formation play in the northern
portion of the West Gharib concession has expanded to six
structures that have tested oil. There are several other structural
closures that will be tested over the next 12 months. The focus of
drilling in West Gharib for 2010 will be to define the size of
these discoveries. Full development of the fields is expected to
continue through 2011 and 2012.
In the Western Desert area, the follow-up well in the Safwa
field was positive and up to three additional wells are planned for
the remainder of the year. In the Nuqra Block in Egypt, the Company
has firmed up its drilling plans and anticipates it will drill two
exploratory wells in the latter part of 2010. The drilling program
in the Republic of Yemen ("Yemen") was restarted in the second
quarter with one development well on production in early July. 2010
is expected to be most active drilling year in the Company's
history.
A conference call to discuss TransGlobe's second quarter results
presented in this report will be held on Thursday, August 5, 2010
at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) and is
accessible to all interested parties by dialing (416) 340-8018 or
toll-free 1-866-223-7781 (see also TransGlobe's news release dated
July 29, 2010). Online, the web cast may be accessed at
http://events.digitalmedia.telus.com/transglobe/080510/index.php.
FINANCIAL AND OPERATING RESULTS
(US$000s, except per share, price, volume amounts and % change)
Three Months Ended June 30 Six Months Ended June 30
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Financial 2010 2009 % Change 2010 2009 % Change
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Oil revenue 61,540 42,557 45 123,191 70,936 74
Oil revenue, net
of royalties
and other 35,638 26,462 35 73,042 45,522 60
Derivative gain
(loss) on commodity
contracts 311 (3,481) 109 289 (3,681) 108
Operating expense 6,247 5,201 20 12,034 10,407 16
General and
administrative
expense 3,034 2,363 28 6,419 4,869 32
Depletion,
depreciation and
accretion expense 7,338 14,415 (49) 14,681 26,432 (44)
Income taxes 9,214 5,631 64 17,834 8,805 103
Funds flow from
operations (1) 17,027 14,117 21 36,100 22,758 59
Basic per share 0.26 0.22 0.55 0.36
Diluted per share 0.25 0.22 0.54 0.36
Net income (loss) 9,438 (4,361) 316 21,036 (9,315) 326
Basic per share 0.14 (0.07) 0.32 (0.15)
Diluted per share 0.14 (0.07) 0.31 (0.15)
Capital
expenditures 14,486 8,480 71 27,933 17,406 61
Long-term debt,
including current
portion 49,977 52,551 (5) 49,977 52,551 (5)
Common shares
outstanding
Basic (weighted
-average) 66,031 65,328 1 65,733 63,529 3
Diluted (weighted
-average) 68,522 65,328 5 67,880 63,529 7
Total assets 263,345 229,658 15 263,345 229,658 15
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(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Operating
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Average production
volumes (Bopd) 9,206 9,619 (4) 9,449 9,206 3
Average price
($ per Bbl) 73.46 48.62 51 72.03 42.57 69
Operating expense
($ per Boe) 7.46 5.94 26 7.04 6.25 13
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OPERATIONS UPDATE
ARAB REPUBLIC OF EGYPT
West Gharib, Arab Republic of Egypt (100% working interest,
TransGlobe operated)
Operations and Exploration
Drilling
Five oil wells were drilled during the second quarter at Hana
#22, Arta #13, Arta #14, East Arta #2 and Hana West #9. Subsequent
to quarter-end, East Arta #3 and Hana #23 were drilled and cased as
potential oil wells.
The Hana #22 well was drilled at the south end of the Hana field
(offset to Hana #20) to a total depth of 5,503 feet. The well was
placed on production as a Kareem oil well at an initial rate of 150
Bopd in mid-April.
The Arta #13 well was drilled as a western extension to the Arta
Nukhul pool. The well was initially completed as a 10-15 Bopd
Nukhul oil well. The Arta #13 well was fracture stimulated
("frac'd") as part of the June frac program at Arta and was
producing approximately 120 Bopd in late July.
The Arta #14 well was drilled, cased and completed as a
producing Nukhul oil well, extending the Arta pool to the
southeast. The well was frac'd in late July and is producing at an
initial rate of 600 Bopd.
The East Arta #2 well was drilled as a down dip eastern
extension to the Arta Nukhul pool. The well encountered oil in the
Nukhul formation approximately 1,000 feet structurally lower than
Arta #13 and was cased as a Nukhul oil well. In addition to
extending the pool to the east, the well encountered a thicker
Nukhul including a new oil pool in the lower Nukhul sand. The well
was completed in the lower Nukhul and placed on initial production
at 120 Bopd prior to stimulation. The planned frac in the upper
Nukhul has been deferred due to the encouraging performance of the
un-stimulated lower Nukhul which is currently producing 85
Bopd.
Based on preliminary in-house deterministic volumetric
estimates, the Petroleum Initially in Place ("PIIP") for the Arta
pool has increased from 28 million barrels ("MMBbl") to 36 MMBbl.
Additional drilling to the east and north will be required to
determine the extent of the pool.
A second drilling rig was contracted initially to focus on
exploration/appraisal projects in the southern development leases
(Hana, Hoshia, West Hoshia and Fadl) which are typically deeper
tests. The first well with the new rig, Hana West #9, was drilled
to a total depth of 6,910 feet and cased as dual zone oil well. The
well encountered oil pay in the Kareem and Lower Rudeis sands. The
well was completed in the Lower Rudeis formation placed on
production at an initial rate of 800+ Bopd in early July.
The East Arta #3 exploration well was drilled, cased and
completed as a Nukhul oil well in July. East Arta #3 encountered a
thin sand section in the Nukhul on a separate structure
approximately 2.4 kilometers northeast of East Arta #2. The well is
being evaluated for frac stimulation.
The East Arta #4 exploration well is drilling below the Nukhul
formation and is targeting to reach total depth in the Nubia
formation next week. The well was drilled through the Nukhul
formation, logged and cased prior to drilling the deep section of
the well. It is thick Nukhul formation with an estimated 32 feet of
net pay. An oil sample (20 degree API) was recovered on wireline.
Following East Arta #4 the drilling rig will move back to the Arta
field to drill step-out appraisals.
The Hana #23 well was drilled to a total depth of 7,127 feet and
cased as a Kareem formation oil well. The well will be completed as
a Kareem producer in August. Following Hana #23, the rig will move
to Hoshia #9 to drill a dual target (Rudeis/Nukhul).
Fracture stimulations
During the first quarter, the Company successfully fracture
stimulated the Nukhul formation in Arta #9 during February,
followed by three additional fracs in mid-March at Arta #2, #4 and
#8. The wells have been placed on production and the early
production rates indicate they will stabilize in the 100-300 Bopd
range per well which represents a more than tenfold increase over
the pre-frac rates.
In June, TransGlobe successfully completed the first,
multi-stage, horizontal ("Hz") well stimulation in the Arab
Republic of Egypt ("Egypt") at Arta #12. The final stage of the
600,000 pound multi-stage frac was completed on June 17. The well
was placed on production on June 23 at a rate of 300-400 Bopd.
Based on continued high pumping fluid levels, the well is scheduled
for a larger pump installation in Q3 following the current frac
program. Arta #12 Hz was producing approximately 15 Bopd prior to
the fracture stimulation. Following the Arta #12 Hz frac, the Arta
#13 and Arta #1 vertical wells were frac'd and placed on production
in late June.
Subsequent to the quarter, the Nukhul formation was frac'd in
vertical wells at Arta #6, Arta #7 and Arta #14 during July with
additional fracs planned for Hoshia #8, South Rahmi #3 and East
Arta wells in August.
Total Arta field production has increased from an average of 130
Bopd in January 2010 to approximately 722 Bopd in the second
quarter and 969 Bopd in July. The recent drilling and fracing
program has now identified at least five Nukhul oil pools. The
development of these pools as well as additional Nukhul exploration
tests is expected to be the focus of future reserve additions in
West Gharib.
Production
Production from West Gharib averaged 6,631 Bopd to TransGlobe
during the second quarter, a 3% (217 Bopd) decrease from the
previous quarter. Production was curtailed in June to 6,254 Bopd
due to scheduled workovers and liner installations associated with
the Arta frac program. Production averaged 7,255 Bopd to TransGlobe
during July with the addition of the Arta wells and Hana West
#9.
Quarterly West Gharib Production (Bopd)
2010 2009
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Q-2 Q-1 Q-4 Q-3
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Gross production rate 6,631 6,848 5,815 5,747
TransGlobe working interest 6,631 6,848 5,815 5,747
TransGlobe net (after royalties) 4,040 4,250 3,775 3,732
TransGlobe net (after royalties and
tax)(1) 3,009 3,222 2,951 2,918
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(1) 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.
East Ghazalat Block, Arab Republic of Egypt (50% working
interest)
Operations and Exploration
Two wells were drilled during the quarter resulting in one oil
well (Safwa NW #1) and one dry hole (Sahab #1).
The Sahab #1 well was drilled to a total depth of 8,638 feet and
abandoned in late April.
The Safwa NW-1 well was drilled to a total depth of 4,440 feet
and completed as a Bahariya oil well. A 30 foot net pay section was
encountered in the Bahariya sandstones. A 14 foot interval was
perforated and tested at a rate of 250 barrels of light, 34ยบ API
oil per day.
The Safwa NW-1 well is located 2.5 kilometers to the northwest
of the Safwa #1 discovery well which tested 300 Bopd from the same
formation. Safwa NW-1 was the fourth well and the second discovery
in the exploration drilling program conducted by operator Vegas Oil
& Gas SA ("Vegas") in partnership with TransGlobe.
Subsequent to the quarter, the partners have discussed a new
drilling program which could commence in August. Potentially two
appraisal/exploration wells are planned for the Safwa structure
which has Petroleum Initially in Place ("PIIP") of 20.6 MMBbl. The
third well is targeting the Nakhil prospect which has an estimated
PIIP of 10.4 MMBbl could be added to the program. The Nakhil
prospect is located approximately 8 kilometers southwest of Safwa
#1. The PIIP numbers are based on in-house estimates using the
respective probabilistic P-mean cases.
The East Ghazalat Concession is located in the prolific Abu
Gharadiq basin of Egypt's Western Desert, approximately 250
kilometers west of Cairo. East Ghazalat was awarded to Vegas Oil
and Gas SA (Operator) on June 5, 2007 and reached the end of the
first, three-year exploration period on June 5, 2010. Pursuant to
the terms of the Concession agreement, 25% of the 858 km2 original
concession was relinquished prior to entering the first, two-year
extension period on June 6, 2010. All work commitments have been
met for the first exploration period and the two extension
periods.
Nuqra Block 1, Arab Republic of Egypt (71.43% working interest,
TransGlobe operated)
Operations and Exploration
TransGlobe plans to drill two exploration wells commencing in
the fourth quarter, subject to rig availability and government
approvals. The first two wells will test the Diwan and Selsella
prospects.
The Company has mapped five prospects in the eastern extension
of the Kom Ombo sub-basin where the Al Baraka oil field was
discovered by Dana Gas. The following table is a summary of the
current Nuqra prospects:
Gross PIIP(1)
Name Status (MMBbl)
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Diwan Prospect 46.0
Selsella Prospect 13.6
Raghama Prospect 162.0
Dabud Lead 37.2
W. Diwan Lead 22.4
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(1) Internally estimated PIIP using the probabilistic P-mean case.
YEMEN EAST- Masila Basin
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
No wells were drilled during the second quarter.
The joint venture partners approved two development wells for
the Godah pool in 2010. Godah #11 commenced drilling on August 2,
2010. Godah #12 is scheduled for the fourth quarter.
Production
Production from Block 32 averaged 4,461 Bopd (616 Bopd to
TransGlobe) during the quarter, representing a 10% decrease from
the previous quarter primarily due to natural declines and down
time for pump replacements at Tasour.
Production averaged approximately 4,388 Bopd (606 Bopd to
TransGlobe) during July.
Quarterly Block 32 Production (Bopd)
2010 2009
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Q-2 Q-1 Q -4 Q-3
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Gross production rate 4,464 4,948 5,174 5,501
TransGlobe working interest 616 683 715 760
TransGlobe net (after royalties) 315 472 437 467
TransGlobe net (after royalties and
tax)(1) 215 400 346 370
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(1) Under the terms of the Block 32 Production Sharing Agreement ("PSA"),
royalties and taxes are paid out of the government's share of production
sharing oil.
Block 72, Republic of Yemen (20% working interest)
Operations and Exploration
The Block 72 joint venture partnership entered the second,
30-month exploration period in January 2009 which carries a
commitment of one exploration well.
The Block 72 joint venture partnership has entered into a
farm-out agreement with TOTAL E&P Yemen who is the Operator of
Block 10 in the Masila Basin, subject to approval by the Ministry
of Oil and Minerals. Under the terms of the agreement, the Company
will reduce its working interest from 33% to 20%. An exploration
well targeting a fractured basement prospect on the northern
portion of Block 72 is planned for the fourth quarter of 2010.
YEMEN WEST- Marib Basin
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
An Nagyah #25 was drilled and completed as a producing Lam A oil
well during the quarter. Subsequent to the quarter, drilling
commenced at An Nagyah #4. An Nagyah #25 and #4 are re-entries of
existing vertical wells to drill short radius horizontal laterals
in the Lam A pool to improve production and reserve recoveries. The
An Nagyah #25 Hz well was placed on production at an initial
flowing rate of approximately 1,300 Bopd in mid-July.
Following An Nagyah #4, the rig is scheduled to drill a new
development horizontal well at An Nagyah #29. In total six to eight
horizontal wells are planned for the An Nagyah pool. In addition to
An Nagyah development drilling program, two exploration wells (one
on Block S-1 and one on Block 75) and a horizontal appraisal well
in the Osaylan pool are planned.
It is expected that the Block S-1 exploration well (An Nagyah
Basement) will be drilled late in the third quarter following An
Nagyah #29. The An Nagyah Basement exploration well is targeting a
separate Lam terrace adjacent to the producing An Nagyah field and
a fractured Basement prospect under the main field. The well will
be drilled vertically through the Lam formation and then
directionally drilled at a high angle into the Basement structure.
The well is targeting a gross PIIP of 21.2 MMBbl in the Lam
prospect and 73.1 MMBbl in the fractured Basement prospect, based
on internally generated estimates using the respective
probabilistic P-mean case.
Production
Production from Block S-1 averaged 7,836 Bopd (1,959 Bopd to
TransGlobe) during the second quarter, representing a 9% decline
from the previous quarter, primarily due to increased associated
gas production and gas injection capacity. Concurrent with the
horizontal development drilling program, the operator is installing
additional compression to increase gas injection capacity. It is
expected the additional compression will be installed by the fourth
quarter.
Production averaged approximately 6,136 Bopd (1,534 Bopd to
TransGlobe) during July, due to compressor overhauls at the An
Nagyah central production facility.
Quarterly Block S-1 Production (Bopd)
2010 2009
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Q2 Q1 Q-4 Q-3
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Gross field production rate 7,836 8,652 8,504 9,428
TransGlobe working interest 1,959 2,163 2,126 2,357
TransGlobe net (after royalties) 995 1,169 867 1,254
TransGlobe net (after royalties and
tax)(1) 744 906 585 985
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(1) 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% 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 is planned as part of
the Block S-1/75 drilling program. The Block 75 exploration well is
currently scheduled for the first quarter of 2011.
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 5, 2010
Management's discussion and analysis ("MD&A") should be read
in conjunction with the unaudited interim financial statements for
the three months and six months ended June 30, 2010 and 2009 and
the audited financial statements and MD&A for the year ended
December 31, 2009 included in the Company's annual report. The
consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada in the
currency of the United States (except where otherwise noted).
Additional information relating to the Company, including the
Company's Annual Information Form, is on SEDAR at www.sedar.com.
The Company's annual report and Form 40-F may be found on EDGAR at
www.sec.gov.
READER ADVISORIES
Forward-Looking Statements
This MD&A may include certain statements that may be deemed
to be "forward-looking statements" within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Such statements
relate to possible future events. All statements other than
statements of historical fact may be forward-looking statements.
Forward-looking statements are often, but not always, identified by
the use of words such as "seek", "anticipate", "plan", "continue",
"estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should",
"believe" and similar expressions. These statements involve known
and unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements. Although
TransGlobe's forward-looking statements are based on the beliefs,
expectations, opinions and assumptions of the Company's management
on the date the statements are made, such statements are inherently
uncertain and provide no guarantee of future performance. Actual
results may differ materially from TransGlobe's expectations as
reflected in such forward-looking statements as a result of various
factors, many of which are beyond the control of the Company. These
factors include, but are not limited to, unforeseen changes in the
rate of production from TransGlobe's oil and gas properties,
changes in price of crude oil and natural gas, adverse technical
factors associated with exploration, development, production or
transportation of TransGlobe's crude oil and natural gas reserves,
changes or disruptions in the political or fiscal regimes in
TransGlobe's areas of activity, changes in tax, energy or other
laws or regulations, changes in significant capital expenditures,
delays or disruptions in production due to shortages of skilled
manpower, equipment or materials, economic fluctuations, and other
factors beyond the Company's control. TransGlobe does not assume
any obligation to update forward-looking statements, other than as
required by law, if circumstances or management's beliefs,
expectations or opinions should change and investors should not
attribute undue certainty to, or place undue reliance on, any
forward-looking statements. Please consult TransGlobe's public
filings at www.sedar.com and www.sec.gov for further, more detailed
information concerning these matters.
Use of Barrel of Oil Equivalents
The calculation of barrels of oil equivalent ("Boe") is based on
a conversion rate of six thousand cubic feet of natural gas ("Mcf")
to one barrel ("Bbl") of crude oil. Boe's may be misleading,
particularly if used in isolation. A Boe conversion ratio of 6
Mcf:1 Bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead.
Non-GAAP Measures
Funds Flow from Operations
This document contains the term "funds flow from operations",
which should not be considered an alternative to or more meaningful
than "cash flow from operating activities" as determined in
accordance with Generally Accepted Accounting Principles ("GAAP").
Funds flow from operations is a non-GAAP measure that represents
cash generated from operating activities before changes in non-cash
working capital. Management considers this a key measure as it
demonstrates TransGlobe's ability to generate the cash flow
necessary to fund future growth through capital investment. Funds
flow from operations may not be comparable to similar measures used
by other companies.
Reconciliation of Funds Flow from Operations
Three Months Ended Six Months Ended
June 30 June 30
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($000s) 2010 2009 2010 2009
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Cash flow from operating activities 15,627 15,052 19,881 22,941
Changes in non-cash working capital 1,400 (935) 16,219 (183)
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Funds flow from operations 17,027 14,117 36,100 22,758
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Debt-to-funds flow ratio
Debt-to-funds flow is a non-GAAP measure that is used to set the
amount of capital in proportion to risk. The Company's
debt-to-funds flow ratio is computed as long-term debt, including
the current portion, over funds flow from operations for the
trailing twelve months. Debt-to-funds flow may not be comparable to
similar measures used by other companies.
Netback
Netback is a non-GAAP measure that represents sales net of
royalties (all government interests, net of income taxes),
operating expenses and current taxes. Management believes that
netback is a useful supplemental measure to analyze operating
performance and provide an indication of the results generated by
the Company's principal business activities prior to the
consideration of other income and expenses. Netback may not be
comparable to similar measures used by other companies.
TRANSGLOBE'S BUSINESS
TransGlobe is a Canadian-based, publicly traded, oil exploration
and production company whose activities are concentrated in two
main geographic areas, the Arab Republic of Egypt ("Egypt") and the
Republic of Yemen ("Yemen"). Egypt and Yemen include the Company's
exploration, development and production of crude oil. TransGlobe
disposed of its Canadian oil and gas operations in 2008 to
reposition itself as a 100% oil, Middle East/North Africa growth
company.
SELECTED QUARTERLY FINANCIAL INFORMATION
2010 2009
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($000s, except per share, price
and volume amounts) Q-2 Q-1 Q-4 Q-3 Q-2 Q-1
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Average sales volumes (Bopd) 9,206 9,694 8,656 8,864 9,619 8,788
Average price ($/Bbl) 73.46 70.66 62.84 57.41 48.62 35.88
Oil sales 61,540 61,651 50,044 46,818 42,557 28,379
Oil sales, net of royalties
and other 35,638 37,404 28,788 28,495 26,462 19,060
Cash flow from operating
activities 15,627 4,254 12,594 1,264 15,052 7,889
Funds flow from
operations (1) 17,027 19,073 9,703 12,603 14,117 8,641
Funds flow from operations
per share
- Basic 0.26 0.29 0.15 0.19 0.22 0.14
- Diluted 0.25 0.29 0.15 0.19 0.22 0.14
Net income (loss) 9,438 11,598 2,516 (1,618) (4,361) (4,954)
Net income (loss) per share
- Basic 0.14 0.18 0.04 (0.02) (0.07) (0.08)
- Diluted 0.14 0.17 0.04 (0.02) (0.07) (0.08)
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Total assets 263,345 248,446 228,882 228,964 229,658 238,145
Cash and cash equivalents 21,437 18,845 16,177 14,804 23,952 22,041
Total long-term debt,
including current portion 49,977 49,888 49,799 52,686 52,551 57,347
Debt-to-funds flow ratio (2) 0.9 0.9 1.1 1.3 1.2 1.1
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2008
----------------------------------------------------------------------------
($000s, except per share, price and
volume amounts) Q-4 Q-3
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Average sales volumes (Bopd) 6,893 6,935
Average price ($/Bbl) 46.18 104.55
Oil sales 29,285 66,707
Oil sales, net of royalties
and other 18,272 36,577
Cash flow from operating activities 11,252 20,652
Funds flow from operations (1) 6,134 16,775
Funds flow from operations per
share
- Basic 0.10 0.28
- Diluted 0.10 0.27
Net income (loss) 7,640 24,790
Net income (loss) per share
- Basic 0.14 0.41
- Diluted 0.13 0.41
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Total assets 228,238 234,501
Cash and cash equivalents 7,634 8,593
Total long-term debt, including
current portion 57,230 57,127
Debt-to-funds flow ratio (2) 1.0 0.9
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(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
(2) Debt-to-funds flow ratio is a non-GAAP measure that represents total
current and long-term debt over funds flow from operations for the
trailing 12 months.
During the second quarter of 2010, TransGlobe has:
- Maintained a strong financial position, reporting a
debt-to-funds flow ratio of 0.9 at June 30, 2010 (June 30, 2009 -
1.2);
- Funded capital programs entirely with funds flow from
operations;
- Reported a 21% increase in funds flow from operations due to a
51% increase in commodity prices along with a 4% decrease in sales
volumes compared to Q2-2009; and
- Reported net income in Q2-2010 of $9.4 million (Q2-2009 - $4.4
million net loss) mainly due to higher commodity prices in the
quarter compared with the same period in 2009, along with lower
depletion and depreciation expense.
2010 VARIANCES
$ Per Share
$000s Diluted % Variance
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Q2-2009 net loss (4,361) (0.07)
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Cash items
Volume variance (2,599) (0.01) (60)
Price variance 21,582 0.31 495
Royalties (9,807) (0.14) (225)
Expenses:
Operating (1,046) (0.02) (24)
Realized derivative loss 52 - 1
Cash general and administrative (627) (0.01) (14)
Current income taxes (3,583) (0.05) (82)
Realized foreign exchange gain (1,125) (0.02) (26)
Interest on long-term debt 88 - 2
Other income (25) - (1)
----------------------------------------------------------------------------
Total cash items variance 2,910 0.06 66
----------------------------------------------------------------------------
Non-cash items
Unrealized derivative gain 3,740 0.05 86
Depletion and depreciation 7,077 0.10 162
Stock-based compensation (44) - (1)
Amortization of deferred financing
costs 116 - 3
----------------------------------------------------------------------------
Total non-cash items variance 10,889 0.15 250
----------------------------------------------------------------------------
Q2-2010 net income 9,438 0.14 316
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income increased to $9.4 million in Q2-2010 compared to a
loss of $4.4 million in Q2-2009, which was mostly due to a
significant increase in commodity prices and an increased
unrealized gain on derivative commodity contracts along with a
decrease in depletion and depreciation, which was partially offset
by higher royalties and income taxes.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
2010 2009
----------------------------------------------------------------------------
Q-2 Q-1 Q-4 Q-3 Q-2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dated Brent average oil price
($/Bbl) 78.30 76.10 74.56 68.27 58.79
U.S./Canadian Dollar average
exchange rate 1.028 1.016 1.056 1.098 1.167
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The price of Dated Brent oil averaged 33% higher in Q2-2010
compared with Q2-2009. Global markets are currently in a period of
economic recovery with improved liquidity and access to capital, in
addition to strengthening oil prices. TransGlobe's management
believes the Company is well positioned to take advantage of the
improving economy due to its increasing production, manageable debt
levels, positive cash generation from operations and the
availability of cash and cash equivalents.
The Company designed its 2010 budget to be flexible, allowing
spending to be adjusted as commodity prices change and forecasts
are reviewed.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest Before Royalties and Other (Bopd)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt - Oil sales 6,631 6,384 6,739 5,877
Yemen - Oil sales 2,575 3,235 2,710 3,329
----------------------------------------------------------------------------
Total Company - daily sales
volumes 9,206 9,619 9,449 9,206
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback
Consolidated
Six Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 123,191 72.03 70,936 42.57
Royalties and other 50,149 29.32 25,414 15.25
Current taxes 17,834 10.43 8,805 5.28
Operating expenses 12,034 7.04 10,407 6.25
----------------------------------------------------------------------------
Netback 43,174 25.24 26,310 15.79
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 61,540 73.46 42,557 48.62
Royalties and other 25,902 30.92 16,095 18.39
Current taxes 9,214 11.00 5,631 6.43
Operating expenses 6,247 7.46 5,201 5.94
----------------------------------------------------------------------------
Netback 20,177 24.08 15,630 17.86
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt
Six Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 85,125 69.79 40,926 38.47
Royalties and other 32,783 26.88 14,385 13.52
Current taxes 13,014 10.67 5,784 5.44
Operating expenses 7,487 6.14 5,454 5.13
----------------------------------------------------------------------------
Netback 31,841 26.10 15,303 14.38
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 43,094 71.42 25,531 43.95
Royalties and other 16,839 27.91 9,009 15.51
Current taxes 6,701 11.11 3,588 6.18
Operating expenses 3,845 6.37 2,667 4.59
----------------------------------------------------------------------------
Netback 15,709 26.03 10,267 17.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The netback per Bbl in Egypt increased 47% and 82% in the three
and six months ended June 30, 2010, respectively, compared with the
same periods of 2009, mainly as a result of oil prices increasing
by 63% and 81%, respectively, partially offset by higher royalty
and tax rates. The average selling price during the three months
ended June 30, 2010 was $71.42/Bbl, which represents a
gravity/quality adjustment of approximately $6.88/Bbl to the
average Dated Brent oil price for the period of $78.30/Bbl.
Royalties and taxes as a percentage of revenue increased to 54%
in the three and six months ended June 30, 2010, compared with 49%
in the same period of 2009. Royalty and tax rates fluctuate in
Egypt due to changes in the cost oil whereby the Production Sharing
Contract ("PSC") allows for recovery of operating and capital costs
through a reduction in government take.
Operating expenses on a per Bbl basis for the three and six
months ended June 30, 2010 increased 39% and 20%, respectively,
compared with the same periods of 2009. This is mainly due to
higher well service costs, fuel costs and labor costs in Egypt
during the three and six month periods ended June 30, 2010 compared
with the same periods in 2009.
Yemen
Six Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 38,066 77.60 30,010 49.81
Royalties and other 17,366 35.40 11,029 18.30
Current taxes 4,820 9.83 3,021 5.01
Operating expenses 4,547 9.27 4,953 8.22
----------------------------------------------------------------------------
Netback 11,333 23.10 11,007 18.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 18,446 78.72 17,026 57.84
Royalties and other 9,063 38.68 7,086 24.07
Current taxes 2,513 10.72 2,043 6.94
Operating expenses 2,402 10.25 2,534 8.61
----------------------------------------------------------------------------
Netback 4,468 19.07 5,363 18.22
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Yemen, the netback per Bbl increased 5% and 26% in the three
and six months ended June 30, 2010, respectively, compared with the
same periods in 2009 primarily as a result of oil prices increasing
by 36% and 56%, respectively, partially offset by higher royalty
and tax rates.
Royalties and taxes as a percentage of revenue increased to 63%
and 58% in the three and six months ended June 30, 2010,
respectively, compared with 54% and 47%, respectively, in 2009.
Royalty and tax rates fluctuate in Yemen due to changes in the
amount of cost sharing oil, whereby the Block 32 and Block S-1
Production Sharing Agreements ("PSAs") allow for the recovery of
operating and capital costs through a reduction in Ministry of Oil
and Minerals' take of oil production.
Operating expenses on a per Bbl basis for the three and six
months ended June 30, 2010 increased 19% and 13%, respectively,
mostly due to lower volumes compared to the same periods in
2009.
DERIVATIVE COMMODITY CONTRACTS
TransGlobe uses hedging arrangements as part of its risk
management strategy to manage commodity price fluctuations and
stabilize cash flows for future exploration and development
programs. The hedging program remained unchanged in Q2-2010, with
no new hedging arrangements being entered into.
The estimated fair value of unrealized commodity contracts is
reported on the Consolidated Balance Sheets, with any change in the
unrealized positions recorded to income. The fair values of these
transactions are based on an approximation of the amounts that
would have been paid to, or received from, counter-parties to
settle the transactions outstanding as at the Consolidated Balance
Sheet date with reference to forward prices and market values
provided by independent sources. The actual amounts realized may
differ from these estimates.
The realized loss on commodity contracts in the first six months
of 2010 relates mostly to the purchase of a new financial floor
derivative commodity contract for $0.4 million, compared with $0.7
million in realized gains for the same period in 2009 as a result
of depressed oil prices in the first six months of last year. The
mark-to-market valuation of TransGlobe's future derivative
commodity contracts increased in value from a $0.5 million
liability at December 31, 2009 to a $0.2 million asset at June 30,
2010, thus resulting in a $0.7 million unrealized gain on future
derivative commodity contracts being recorded in the period.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized cash (loss) gain on commodity
contracts (1) (51) (103) (417) 668
Unrealized gain (loss) on commodity
contracts (2) 362 (3,378) 706 (4,349)
----------------------------------------------------------------------------
Total derivative gain (loss) on
commodity contracts 311 (3,481) 289 (3,681)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Realized cash gain (loss) represents actual cash settlements, receipts
and premiums paid under the respective contracts.
(2) The unrealized loss on derivative commodity contracts represents the
change in fair value of the contracts during the period.
If the Dated Brent oil price remains at the level experienced at
the end of Q2-2010, the derivative asset will be realized over the
next year. However, a 10% decrease in Dated Brent oil prices would
result in a $0.3 million increase in the derivative commodity
contract asset, thus increasing the unrealized gain by the same
amount. Conversely, a 10% increase in Dated Brent oil prices would
decrease the unrealized gain on commodity contracts by $0.2
million. The following commodity contracts are outstanding at June
30, 2010:
Dated Brent
Pricing
Period Volume Type Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
July 1, 2010-
August 31,
2010 12,000 Bbls/month Financial Collar $60.00- $84.25
July 1, 2010-
August 31,
2010 9,000 Bbls/month Financial Collar $40.00- $80.00
July 1, 2010-
December 31,
2010 10,000 Bbls/month Financial Floor $60.00
July 1, 2010-
December 31,
2010 20,000 Bbls/month Financial Floor $65.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at June 30, 2010, the total volumes hedged for the balance of 2010 are:
Six months
2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bbls 222,000
Bopd 1,207
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At June 30, 2010, all of the derivative commodity contracts were
classified as current assets.
Subsequent to June 30, 2010, TransGlobe bought out both
financial collar derivative commodity contracts. Immediately
subsequent to the buy-out, the following commodity contracts are
outstanding:
Dated Brent
Period Volume Type Pricing Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
July 1, 2010-
December 31, 2010 10,000 Bbls/month Financial Floor $ 60.00
July 1, 2010-
December 31, 2010 20,000 Bbls/month Financial Floor $ 65.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Immediately subsequent to the buy-out, the total volumes hedged for the
balance of 2010 are:
Six months
2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bbls 180,000
Bopd 978
----------------------------------------------------------------------------
----------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
Six Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 6,733 3.94 5,317 3.19
Stock-based compensation 911 0.53 970 0.58
Capitalized G&A and overhead
recoveries (1,225) (0.72) (1,418) (0.85)
----------------------------------------------------------------------------
G&A (net) 6,419 3.75 4,869 2.92
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 3,297 3.94 2,418 2.76
Stock-based compensation 524 0.63 480 0.55
Capitalized G&A and overhead recoveries (787) (0.94) (535) (0.61)
----------------------------------------------------------------------------
G&A (net) 3,034 3.63 2,363 2.70
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A expenses (net) increased 28% (34% on a per Bbl basis)
and 32% (28% on a per Bbl basis) in the three and six months ended
June 30, 2010, respectively, compared with the same periods in 2009
partly due to a strengthening Canadian dollar which accounted for
approximately 48% and 52% of the increases, respectively, as the
majority of TransGlobe's G&A costs are incurred in Canadian
dollars. The remainder of the increase was due to increased
insurance, staffing and office costs.
INTEREST ON LONG-TERM DEBT
Interest expense for the three and six months ended June 30,
2010 decreased to $0.5 million and $1.0 million, respectively (2009
- $0.7 million and $1.3 million, respectively). Interest expense
includes interest on long-term debt and amortization of transaction
costs associated with long-term debt. In the three months ended
June 30, 2010, the Company expensed $0.1 million of transaction
costs (2009 - $0.2 million). The Company had $50.0 million of debt
outstanding at June 30, 2010 (June 30, 2009 - $53.0 million). The
long-term debt that was outstanding at June 30, 2010 bore interest
at the Eurodollar rate plus three percent. The new Borrowing Base
Facility, which was entered into subsequent to June 30, 2010 and
replaces the long-term debt that was outstanding at June 30, 2010,
will bear interest at LIBOR plus an applicable margin that varies
from 3.75% to 4.75% depending on the amount drawn under the
facility.
DEPLETION AND DEPRECIATION ("DD&A")
Six Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 10,718 8.79 21,403 20.12
Yemen 3,859 7.87 4,937 8.19
Corporate 104 - 92 -
----------------------------------------------------------------------------
14,681 8.58 26,432 15.86
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 5,440 9.02 11,930 20.53
Yemen 1,845 7.87 2,436 8.28
Corporate 53 - 49 -
----------------------------------------------------------------------------
7,338 8.76 14,415 16.47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, DD&A decreased 56% on a per Bbl basis for both the
three and six month periods ended June 30, 2010, due to significant
increases to Proved reserves at year-end 2009.
In Yemen, DD&A decreased 5% and 4% on a per Bbl basis for
the three and six months ended June 30, 2010, respectively, due to
Proved reserve additions at year-end 2009.
In Egypt, unproven properties of $16.6 million (2009 - $9.7
million) relating to Nuqra ($8.1 million), West Gharib ($1.8
million) and East Ghazalat ($6.7 million) were excluded from the
costs subject to DD&A in the quarter. In Yemen, unproven
property costs of $11.8 million (2009 - $9.1 million) relating to
Block 72 and Block 75 were excluded from the costs, subject to
DD&A in the quarter.
CAPITAL EXPENDITURES
Six Months Ended June 30
----------------------------------------------------------------------------
($000s) 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 26,197 12,932
Yemen 1,662 4,316
Corporate 74 158
----------------------------------------------------------------------------
Total 27,933 17,406
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, total capital expenditures in the first six months of
2010 were $26.2 million (2009 - $12.9 million). The Company drilled
13 wells, resulting in 11 oil wells (three at Hana, two at Arta,
one at each of Hana West, Hoshia, North Hoshia, East Arta, and two
at East Ghazalat), in addition to two dry holes at East
Ghazalat.
In Yemen, total capital expenditures in 2010 were $1.7 million
(2009 - $4.3 million). One oil development well was drilled in the
first six months of 2010 at Block S-1.
OUTSTANDING SHARE DATA
As at June 30, 2010, the Company had 66,592,335 common shares
issued and outstanding.
The Company received regulatory approval to purchase, from
time-to-time, as it considers advisable, up to 6,116,905 common
shares under a Normal Course Issuer Bid which commenced September
7, 2009 and will terminate September 6, 2010. During the six months
ended June 30, 2010 and during the year ended December 31, 2009,
the Company did not repurchase any common shares.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity describes a company's ability to access cash.
Companies operating in the upstream oil and gas industry require
sufficient cash in order to fund capital programs necessary to
maintain and increase production and reserves, to acquire strategic
oil and gas assets and to repay debt. TransGlobe's capital programs
are funded principally by cash provided from operating activities.
A key measure that TransGlobe uses to evaluate the Company's
overall financial strength is debt-to-funds flow from operating
activities (calculated on a 12-month trailing basis). TransGlobe's
debt-to-funds flow from operating activities ratio, a key
short-term leverage measure, remained strong at 0.9 times at June
30, 2010. This was within the Company's target range of no more
than 2.0 times.
The following table illustrates TransGlobe's sources and uses of
cash during the periods ended June 30, 2010 and 2009:
Sources and Uses of Cash
Six Months Ended June 30
----------------------------------------------------------------------------
($000s) 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
Funds flow from operations (1) 36,100 22,758
Exercise of options 5,744 80
Issuance of common shares, net of share issuance costs - 15,127
----------------------------------------------------------------------------
41,844 37,965
Cash used
Capital expenditures 27,933 17,406
Deferred financing costs 699 -
Repayment of long-term debt - 5,000
----------------------------------------------------------------------------
28,632 22,406
----------------------------------------------------------------------------
Net cash from operations 13,212 15,559
Changes in non-cash working capital (7,952) 759
----------------------------------------------------------------------------
Increase in cash and cash equivalents 5,260 16,318
Cash and cash equivalents - beginning of period 16,177 7,634
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 21,437 23,952
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Funding for the Company's capital expenditures was provided by
funds flow from operations. The Company expects to fund its 2010
exploration and development program of $71.0 million ($43.0 million
remaining) and contractual commitments through the use of working
capital and cash generated by operating activities. The use of new
financing during 2010 may also be utilized to finance new
opportunities. Fluctuations in commodity prices, product demand,
foreign exchange rates, interest rates and various other risks may
impact capital resources.
Working capital is the amount by which current assets exceed
current liabilities. At June 30, 2010, the Company had working
capital of $51.9 million (December 31, 2009 - deficiency of $11.8
million). The working capital deficiency as at December 31, 2009
was primarily the result of the reclassification of long-term debt
as a current liability. On July 22, 2010, the Company entered into
a new Borrowing Base Facility. Therefore, as at June 30, 2010 the
credit facility was classified as long-term which eliminated the
working capital deficiency. While the reclassification of bank debt
accounts for the majority of the increase in working capital, other
increases to working capital in 2010 are the result of cash and
cash equivalents increasing due to the collection of certain
accounts receivable, and increased accounts receivable due to
higher oil prices and higher sales volumes. These receivables are
not considered to be impaired; however, to mitigate this risk, the
Company entered into an insurance program on a portion of the
receivable balance.
At June 30, 2010, TransGlobe had a $60.0 million Revolving
Credit Agreement of which $50.0 million was drawn. Amounts drawn
under the Revolving Credit Agreement were set to become due
September 25, 2010. Subsequent to June 30, 2010, the Company
entered into a new five-year $100 million Borrowing Base Facility
and paid out the original Revolving Credit Agreement. As repayments
on the new Borrowing Base Facility are not expected to commence
until 2012, the entire balance is presented as a long-term
liability on the consolidated balance sheets. Repayments will be
made on a semi-annual basis according to the scheduled reduction of
the facility. As of June 30, 2010, the Company has incurred
financing costs related to the new Borrowing Base Facility in the
amount of $0.7 million.
December 31,
($000s) June 30, 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement 50,000 53,000
Deferred financing costs (23) (201)
----------------------------------------------------------------------------
49,977 49,799
----------------------------------------------------------------------------
Current portion of long-term debt (net of
deferred financing costs) - 49,799
----------------------------------------------------------------------------
Long-term debt (net of deferred financing costs) 49,977 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
As part of its normal business, the Company entered into
arrangements and incurred obligations that will impact the
Company's future operations and liquidity. The principal
commitments of the Company are as follows:
($000s) Payment Due by Period(1,2)
----------------------------------------------------------------------------
Less More
Recognized than than
in Financial Contractual 1 1-3 4-5 5
Statements Cash Flows year years years years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts
payable and
accrued
liabilities Yes-Liability 22,017 22,017 - - -
Long-term debt:
Borrowing Base
Facility Yes-Liability 50,000 - 29,557 20,443 -
Office and
equipment
leases No 10,954 1,509 2,880 1,872 4,693
Minimum work
commitments(3) No 7,876 2,923 4,953 - -
----------------------------------------------------------------------------
Total 90,847 26,449 37,390 22,315 4,693
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs related to certain leases,
interest on long-term debt and payments made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at June
30, 2010 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
TransGlobe entered into a farm-out agreement and committed to
pay 100% of three exploration wells to a maximum of $9.0 million to
earn a 50% working interest in the East Ghazalat Concession in the
Western Desert of Egypt, subject to the approval of the Egyptian
Government. The Company completed drilling all three exploration
wells during the six month period ended June 30, 2010. The
Contractor (Joint Venture Partners) has entered the first, 24-month
extension period. The financial and work commitments for the
extension period were met in the prior period.
Pursuant to the Concession agreement for Nuqra Block 1 in Egypt,
the Contractor (Joint Venture Partners) has a minimum financial
commitment of $5.0 million ($4.4 million to TransGlobe) and a work
commitment for two exploration wells in the second exploration
extension. The second, 36-month extension period commenced on July
18, 2009. The Contractor has met the second extension financial
commitment of $5.0 million in the prior periods. At the request of
the Government, the Company provided a $4.0 million production
guarantee from the West Gharib Concession prior to entering the
second extension period.
Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint
Venture Partners) has a minimum financial commitment of $2.0
million ($0.1 million to TransGlobe) to drill one exploration well
during the second exploration period. The second, 30-month
exploration period commenced on January 12, 2009. The Contractor
has accepted a farm-in proposal from TOTAL E&P Yemen. Subject
to government approval, the Company will reduce its interest in the
concession to 20%.
Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint
Venture Partners) has a remaining minimum financial commitment of
$3.0 million ($0.8 million to TransGlobe) for one exploration well.
The first, 36-month exploration period commenced March 8, 2008. The
Company issued a $1.5 million letter of credit (expiring November
15, 2011) to guarantee the Company's performance under the first
exploration period. The letter is secured by a guarantee granted by
Export Development Canada.
Pursuant to the August 18, 2008 asset purchase agreement for a
25% financial interest in eight development leases on the West
Gharib Concession in Egypt, the Company has committed to paying the
vendor a success fee to a maximum of $7.0 million if incremental
reserve thresholds are reached in the East Hoshia (up to $5.0
million) and South Rahmi (up to $2.0 million) development leases,
to be evaluated annually. As at December 31, 2009, no additional
fees are due in 2010.
In the normal course of its operations, the Company may be
subject to litigations and claims. Although it is not possible to
estimate the extent of potential costs, if any, management believes
that the ultimate resolution of such contingencies would not have a
material adverse impact on the results of operations, financial
position or liquidity of the Company.
MANAGEMENT STRATEGY AND OUTLOOK FOR 2010
The 2010 outlook provides information as to management's
expectation for results of operations for 2010. Readers are
cautioned that the 2010 outlook may not be appropriate for other
purposes. The Company's expected results are sensitive to
fluctuations in the business environment and may vary accordingly.
This outlook contains forward-looking statements that should be
read in conjunction with the Company's disclosure under
"Forward-Looking Statements", outlined on the first page of this
MD&A.
2010 Outlook Highlights
- Production is expected to average between 10,000 and 10,500
Bopd (mid-point: 10,250), a 14% increase over the 2009 average
production;
- Exploration and development capital budget increased to $71.0
million from $63.0 (allocated 84% to Egypt, 14% to Yemen and 2% to
other) funded from funds flow from operations and cash on hand;
and
- Using the mid-point of production expectations and an average
oil price assumption for the remainder of the year of $65.00/Bbl,
funds flow from operations is expected to be $72.0 million for the
year.
2010 Production Outlook
TransGlobe's production guidance for 2010 is expected to average
between 10,000 and 10,500 Bopd, representing a 14% increase over
the 2009 average production of 8,980 Bopd. This target includes
increased production from Hana, Hana West, Hoshia, Arta and East
Arta in Egypt, and production from the development drilling program
on Block S-1 in Yemen. Production from Egypt is expected to average
approximately 7,550 Bopd during 2010, with the balance of
approximately 2,700 Bopd coming from the Yemen properties.
Production Forecast
2010 Guidance 2009 Actual % Change (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil per day 10,000 - 10,500 8,980 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) % growth based on mid-point of outlook.
2010 Funds Flow From Operations Outlook
This outlook was developed using the above production forecast
and an average Dated Brent oil price of $65.00/Bbl for the
remainder of the year.
2010 Funds Flow From
Operations Outlook
($ million, except % change) 2010 Guidance 2009 Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations (1) 72.0 45.1 60
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Due in part to higher expected prices and higher production,
funds flow from operations is expected to increase by 60% in 2010.
One of the key factors in the increased funds flow in 2010 is due
to a better expected oil price differential to average Dated Brent
benchmark price in Egypt. Price differentials to average Dated
Brent in Egypt narrowed from 24% in 2009 to 10% in 2010. Variations
in production and commodity prices during 2010 could significantly
change this outlook. An increase in the Dated Brent oil price of
$10.00/Bbl for the remainder of the year would increase anticipated
funds flow by approximately $6.0 million to $78.0 million for the
year, while a $10.00/Bbl decrease in the Dated Brent oil price
would result in anticipated funds flow decreasing by approximately
$4.0 million to $68.0 million for the year.
2010 Capital Budget Six Months Ended
June 30, 2010 2010
($ million) Actual Annual Budget
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 26.2 60.0
Yemen 1.7 10.0
Corporate 0.1 1.0
----------------------------------------------------------------------------
Total 28.0 71.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The 2010 capital program is split 64:36 between development and
exploration, respectively. The Company plans to participate in 42
wells in 2010. It is anticipated the Company will fund its entire
2010 capital budget from funds flow and working capital. The
Company designed its 2010 budget to be flexible, allowing spending
to be adjusted as commodity prices change and forecasts are
reviewed. In Q2-2010, the Company increased its capital budget by
$8.0 million with most of the increase coming in Egypt, which is
partially offset by reduced spending in Yemen. The Company plans to
increase its investment in Nuqra, East Ghazalat and West
Gharib.
CHANGES IN ACCOUNTING POLICIES
New Accounting Policies
The Company adopted a share appreciation rights plan in March
2010. Under the share appreciation rights plan, all liabilities
must be settled in cash and, consequently, are classified as
liability instruments and measured at their intrinsic value less
any unvested portion. Unvested share appreciation rights accrue
evenly over the vesting period. The intrinsic value is determined
as the difference between the market value of the Company's common
shares and the exercise price of the share appreciation rights.
This obligation is revalued each reporting period and the change in
the obligation is recognized as stock-based compensation expense
(recovery).
New Accounting Standards
a) Business Combinations
In December 2008, the CICA issued Section 1582, Business
Combinations, which will replace CICA Section 1581 of the same
name. Section 1582 establishes principles and requirements of the
acquisition method for business combinations and related
disclosures. This statement applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after January 2011 with earlier application permitted. The Company
is currently evaluating the impact of this change on its
Consolidated Financial Statements.
b) Non-Controlling Interests
In December 2008, the CICA issued Sections 1601, Consolidated
Financial Statements, and 1602, Non-Controlling Interests. Section
1601 establishes standards for the preparation of consolidated
financial statements. Section 1602 provides guidance on accounting
for a non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination. These
standards are effective on or after the beginning of the first
annual reporting period beginning on or after January 2011 with
earlier application permitted. These standards currently do not
impact the Company as it has full controlling interest of all of
its subsidiaries.
c) International Financial Reporting Standards ("IFRS")
On February 13, 2008 the Canadian Accounting Standards Board
confirmed that effective for interim and annual financial
statements related to fiscal years beginning on or after January 1,
2011, IFRS will replace Canada's current GAAP for all publicly
accountable profit-oriented enterprises.
The Company commenced its IFRS transition project in 2008 and
has completed the project awareness and engagement phase of the
IFRS transition project. Corporate governance over the project was
established and a steering committee and project team formed. The
steering committee is comprised of members of management and
executive and is responsible for final approval of project
recommendations and deliverables to the Audit Committee and Board
of Directors. Communication, training and education are an
important aspect of the Company's IFRS conversion project. Internal
and external training and education sessions have been carried out
and will continue throughout each phase of the project.
The Company completed the diagnostic assessment phase by
performing comparisons of the differences between Canadian GAAP and
IFRS and is currently assessing the effects of adoption and
finalizing its conversion plan. The Company determined that the
most significant impact of IFRS conversion is to property and
equipment. IFRS does not prescribe specific oil and gas accounting
guidance other than for costs associated with the exploration and
evaluation phase. The Company currently follows full cost
accounting as prescribed in Accounting Guideline 16, Oil and Gas
Accounting - Full Cost. Conversion to IFRS may have a significant
impact on how the Company accounts for costs pertaining to oil and
gas activities, in particular those related to the pre-exploration
and development phases. In addition, the level at which impairment
tests are performed and the impairment testing methodology will
differ under IFRS. IFRS conversion will also result in other
impacts, some of which may be significant in nature. The Company
continues to focus on analyzing and developing implementation
strategies and processes for the key IFRS transition issues
identified. Where applicable, key IFRS transition alternatives are
being considered and evaluated. The Company continues to perform
preliminary accounting assessments on less critical IFRS transition
issues and has commenced analysis of IFRS financial statement
presentation and disclosure requirements. These assessments will
need to be further analyzed and evaluated throughout the
implementation phase of the Company's project. At this time, the
impact on the Company's financial position and results of
operations is not reliably determinable or estimable.
In July 2009, the International Accounting Standards Board
("IASB") approved additional exemptions that will allow entities to
allocate their oil and gas asset balance as determined under full
cost accounting to the IFRS categories of exploration and
evaluation assets and development and producing properties. Under
the exemption, exploration and evaluation assets are measured at
the amount determined under an entity's previous GAAP. For assets
in the development or production phases, the amount is also
measured at the amount determined under an entity's previous GAAP;
however, such values must be allocated to the underlying IFRS
transitional assets on a pro-rata basis using either reserve values
or reserve volumes as of the entity's IFRS transition date. This
exemption will relieve entities from significant adjustments
resulting from retrospective adoption of IFRS. The Company intends
to utilize this exemption. The Company is also evaluating other
first-time adoption exemptions and elections available upon initial
transition that provide relief from retrospective application of
IFRS.
Concurrently, the project team is working on the design,
planning and solution development phase. In this phase, the focus
is on determining the specific qualitative and quantitative impact
the application of IFRS requirement has on the Company. The project
team members continue to work with representatives from the various
operational areas to develop recommendations including first-time
adoption exemptions available upon initial transition to IFRS. The
results from the consultations with the various operational areas
are used to draft accounting policies. One of the sections in each
of the draft accounting policies is the disclosure section which
includes the financial statement disclosure as required by IFRS.
First-time adoption exemptions were analyzed by the project team
and a schedule is being drafted for the steering committee to
review and evaluate the exemptions. A detailed implementation plan
and timeline has been developed, which also includes the
development of a training plan. Furthermore, in the second half of
2010 the Company will continue to work on the development of
processes and systems to ensure that IFRS comparative data is
captured, and to position it for reporting under IFRS in 2011.
Additionally, the Company is monitoring the IASB's active
projects and all changes to IFRS prior to January 1, 2011 and will
be incorporated as required.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
TransGlobe's management designed and implemented internal
controls over financial reporting, as defined under National
Instrument 52-109 Certification of Disclosure in Issuers' Annual
and Interim Filings, of the Canadian Securities Administrators.
Internal controls over financial reporting is a process designed
under the supervision of the Chief Executive Officer and the Chief
Financial Officer and effected by the Board of Directors,
management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with Canadian generally accepted accounting principles,
including a reconciliation to U.S. generally accepted accounting
principles, focusing in particular on controls over information
contained in the annual and interim financial statements. Due to
its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements on a timely
basis. A system of internal controls over financial reporting, no
matter how well conceived or operated, can provide only reasonable,
not absolute, assurance that the objectives of the internal
controls over financial reporting are met. Also, projections of any
evaluation of the effectiveness of internal control over financial
reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or
that the degree of compliance with policies or procedures may
deteriorate.
As at the date of this report, management is not aware of any
change in the Company's internal control over financial reporting
that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income (Loss) and Retained Earnings
(Unaudited - Expressed in thousands of U.S. Dollars, except per share
amounts)
Three Months Ended Six Months Ended
June 30 June 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
Oil sales, net of royalties and
other $ 35,638 $ 26,462 $ 73,042 $ 45,522
Derivative gain (loss) on commodity
contracts (Note 12) 311 (3,481) 289 (3,681)
Other income 7 32 7 32
----------------------------------------------------------------------------
35,956 23,013 73,338 41,873
----------------------------------------------------------------------------
EXPENSES
Operating 6,247 5,201 12,034 10,407
General and administrative 3,034 2,363 6,419 4,869
Foreign exchange loss (gain) 167 (958) 331 (654)
Interest on long-term debt 518 722 1,003 1,329
Depletion and depreciation (Note 3) 7,338 14,415 14,681 26,432
----------------------------------------------------------------------------
17,304 21,743 34,468 42,383
----------------------------------------------------------------------------
Income (loss) before income taxes 18,652 1,270 38,870 (510)
Income taxes - current 9,214 5,631 17,834 8,805
----------------------------------------------------------------------------
NET INCOME (LOSS) 9,438 (4,361) 21,036 (9,315)
Retained earnings, beginning of
period 91,611 83,476 80,013 88,430
----------------------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD $ 101,049 $ 79,115 $101,049 $ 79,115
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) per share
(Note 10)
Basic $ 0.14 $ (0.07) $ 0.32 $ (0.15)
Diluted $ 0.14 $ (0.07) $ 0.31 $ (0.15)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Six Months Ended
June 30 June 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) $ 9,438 $ (4,361) $21,036 $ (9,315)
Other comprehensive income - - - -
----------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 9,438 $ (4,361) $21,036 $ (9,315)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
As at As at
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 21,437 $ 16,177
Accounts receivable 50,167 35,319
Derivative commodity contracts (Note 12) 193 -
Prepaids and other 2,120 1,909
----------------------------------------------------------------------------
73,917 53,405
Deferred financing costs (Note 5) 699 -
Goodwill (Note 4) 8,180 8,180
Property and equipment (Note 3) 180,549 167,297
----------------------------------------------------------------------------
$ 263,345 $ 228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 22,017 $ 14,879
Derivative commodity contracts (Note 12) - 514
Current portion of long-term debt (Note 5) - 49,799
----------------------------------------------------------------------------
22,017 65,192
Long-term debt (Note 5) 49,977 -
----------------------------------------------------------------------------
71,994 65,192
Commitments and contingencies (Note 13)
SHAREHOLDERS' EQUITY
Share capital (Note 6) 74,266 66,106
Contributed surplus (Note 8) 5,156 6,691
Accumulated other comprehensive income (Note 9) 10,880 10,880
Retained earnings 101,049 80,013
----------------------------------------------------------------------------
191,351 163,690
----------------------------------------------------------------------------
$ 263,345 $ 228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board:
Signed by:
Ross G. Clarkson, Director Fred J. Dyment, Director
Consolidated Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Six Months Ended
June 30 June 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING
ACTIVITIES:
OPERATING
Net income (loss) $ 9,438 $ (4,361) $ 21,036 $ (9,315)
Adjustments for:
Depletion and depreciation 7,338 14,415 14,681 26,432
Amortization of deferred financing
costs 89 205 178 322
Stock-based compensation (Note 7) 524 480 911 970
Unrealized (gain) loss on commodity
contracts (362) 3,378 (706) 4,349
Changes in non-cash working capital (1,400) 935 (16,219) 183
----------------------------------------------------------------------------
15,627 15,052 19,881 22,941
----------------------------------------------------------------------------
FINANCING
Repayments of long-term debt - (5,000) - (5,000)
Issue of common shares for cash
(Note 6) 5,614 - 5,744 16,392
Issue costs for common shares
(Note 6) - (19) - (1,185)
Deferred financing costs (699) - (699) -
Changes in non-cash working capital - 207 - (879)
----------------------------------------------------------------------------
4,915 (4,812) 5,045 9,328
----------------------------------------------------------------------------
INVESTING
Exploration and development
expenditures (14,486) (8,480) (27,933) (17,406)
Changes in non-cash working capital (3,464) 151 8,267 1,455
----------------------------------------------------------------------------
(17,950) (8,329) (19,666) (15,951)
----------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,592 1,911 5,260 16,318
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 18,845 22,041 16,177 7,634
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 21,437 $ 23,952 $ 21,437 $ 23,952
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow
Information
Cash interest paid $ 429 $ 517 $ 825 $ 1,007
Cash taxes paid 9,214 5,631 17,834 8,805
Cash is comprised of cash on hand
and balances with banks 21,437 23,952 21,437 23,952
Cash equivalents - - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As at June 30, 2010 and December 31, 2009 and for the periods ended June 30,
2010 and 2009
(Unaudited - Expressed in U.S. Dollars)
1. BASIS OF PRESENTATION
The interim consolidated financial statements include the
accounts of TransGlobe Energy Corporation and its subsidiaries
("TransGlobe" or the "Company"), as at June 30, 2010 and December
31, 2009 and for the three and six month periods ended June 30,
2010 and 2009, are presented in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP" or "Cdn. GAAP") on
the same basis as the audited consolidated financial statements as
at and for the year ended December 31, 2009 except as outlined in
Note 2. These interim consolidated financial statements do not
contain all the disclosures required for annual financial
statements. Accordingly, these interim consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto in TransGlobe's annual
report for the year-ended December 31, 2009. In these interim
consolidated financial statements, unless otherwise indicated, all
dollars are in United States (U.S.) dollars. All references to US$
or to $ are to United States dollars and references to C$ are to
Canadian dollars.
2. CHANGES IN ACCOUNTING POLICIES
New Accounting Policies
The Company adopted a share appreciation rights plan in March
2010, which is described in Note 7. Under the share appreciation
rights plan, all liabilities must be settled in cash and,
consequently, are classified as liability instruments and measured
at their intrinsic value less any unvested portion. Unvested share
appreciation rights accrue evenly over the vesting period. The
intrinsic value is determined as the difference between the market
value of the Company's common shares and the exercise price of the
share appreciation rights. This obligation is revalued each
reporting period and the change in the obligation is recognized as
stock-based compensation expense (recovery).
3. PROPERTY AND EQUIPMENT
The Company capitalized general and administrative costs
relating to exploration and development activities during the three
and six months ended June 30, 2010 of $0.6 million and $1.0
million, respectively, in Egypt (2009 - $0.4 million and $1.2
million, respectively) and $0.1 million and $0.2 million,
respectively, in Yemen (2009 - $0.1 million and $0.2 million,
respectively).
Unproven property costs for the three months ended June 30, 2010
in the amount of $16.6 million in Egypt (2009 - $9.7 million) and
$11.8 million in Yemen (2009 - $9.1 million) were excluded from
costs subject to depletion and depreciation.
Future development costs for Proved reserves included in the
depletion calculations for the three months ended June 30, 2010
totaled $2.1 million in Egypt (2009 - $1.9 million) and $11.5
million in Yemen (2009 - $11.0 million).
4. GOODWILL
Changes in the carrying amount of the Company's goodwill, arising from
acquisitions, are as follows:
Six Months Ended Year Ended
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period $ 8,180 $ 8,180
Changes during the period - -
----------------------------------------------------------------------------
Balance, end of period $ 8,180 $ 8,180
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. LONG-TERM DEBT
As at As at
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement $ 50,000 $ 50,000
Deferred financing costs (23) (201)
----------------------------------------------------------------------------
49,977 49,799
----------------------------------------------------------------------------
Current portion of long-term debt (net of
deferred financing costs) - 49,799
----------------------------------------------------------------------------
$ 49,977 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at June 30, 2010, the Company had a $60.0 million Revolving
Credit Agreement of which $50.0 million was drawn. The Revolving
Credit Agreement was set to expire on September 25, 2010 and was
secured by a first floating charge debenture over all assets of the
Company, a general assignment of book debts, security pledge of the
Company's subsidiaries and certain covenants. The Revolving Credit
Agreement bore interest at the Eurodollar Rate plus three percent.
In the three and six months ended June 30, 2010, the average
effective interest rate was 3.4% and 3.3% respectively (2009 - 4.6%
and 4.4%, respectively).
Subsequent to June 30, 2010, the Company entered into a new
five-year $100.0 million Borrowing Base Facility and paid out the
original Revolving Credit Agreement. The new Borrowing Base
Facility is secured by a pledge over certain bank accounts, a
pledge over the Company's subsidiaries, and a fixed and floating
charge over certain assets. The new credit facility bears interest
at the LIBOR rate plus an applicable margin, which ranges from
3.75% to 4.75% and is dependent on the amount drawn. As of June 30,
2010, the Company has incurred financing costs related to the new
Borrowing Base Facility in the amount of $0.7 million. As
repayments on the new Borrowing Base Facility are not expected to
commence until 2012, the entire balance has been presented as a
long-term liability on the consolidated balance sheets. Repayments
will be made on a semi-annual basis in order to reduce the amount
borrowed to an amount no greater than the Borrowing Base. The
amount of the Borrowing Base may fluctuate over time and is
determined principally by the net present value of borrowing base
assets as defined in the Borrowing Base Facility Agreement over the
term of the facility as well as pre-determined semi-annual
reductions. Accordingly, for each balance sheet date, the timing of
repayment is estimated based on the most recent redetermination of
the Borrowing Base and repayment schedules may change in future
periods.
The estimated future debt payments on long-term debt, as of June 30, 2010,
are as follows:
(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2010 -
2011 -
2012 $ 10,876
2013 18,681
2014 14,626
Thereafter 5,817
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. SHARE CAPITAL
Authorized
The Company is authorized to issue an unlimited number of common shares with
no par value.
Issued
Six Months Ended Year Ended
June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
(000s) Shares Amount Shares Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period 65,399 $ 66,106 59,500 $ 50,532
Share issuance - - 5,798 16,312
Stock options exercised 1,194 5,744 101 266
Stock options surrendered for cash
payments - - - (13)
Stock-based compensation on exercise - 2,416 - 213
Share issue costs - - - (1,204)
----------------------------------------------------------------------------
Balance, end of period 66,593 $ 74,266 65,399 $ 66,106
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has received regulatory approval to purchase, from
time to time, as it considers advisable, up to 6,116,905 common
shares under a Normal Course Issuer Bid which commenced September
7, 2009 and will terminate September 6, 2010. During the three and
six month period ended June 30, 2010, the Company did not
repurchase any common shares. During the year-ended December 31,
2009, the Company did not repurchase and cancel any common
shares.
7. STOCK OPTION PLAN
Stock option plan
The Company adopted a stock option plan in May 2007 (the "Plan")
and reapproved unallocated options issuable pursuant to the Plan in
May 2010. The number of Common Shares that may be issued pursuant
to the exercise of options awarded under the Plan and all other
Security Based Compensation Arrangements of the Company is 10% of
the common shares outstanding from time to time. All incentive
stock options granted under the Plan have a per-share exercise
price not less than the trading market value of the common shares
at the date of grant. Stock options vest one-third on each of the
first, second and third anniversaries of the grant date. Options
granted expire five years after the grant date.
The following table summarizes information about the stock options
outstanding and exercisable at the dates indicated:
Six Months Ended Year Ended
June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Number Exercise Number Exercise
of Price of Price
(000s, except per share amounts) Options (C$) Options (C$)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options outstanding, beginning of
period 5,478 4.12 5,600 4.20
Granted 1,220 6.78 815 3.45
Exercised (1,194) 4.95 (101) 2.92
Exercised for cash - - (80) 3.26
Forfeited (575) 4.04 (756) 3.91
----------------------------------------------------------------------------
Options outstanding, end of period 4,929 4.59 5,478 4.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options exercisable, end of period 1,503 4.54 2,335 4.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock-based compensation
Compensation expense of $0.5 million and $0.9 million has been
recorded in general and administrative expenses in the Consolidated
Statements of Income (Loss) and Retained Earnings for the three and
six months ended June 30, 2010 (June 30, 2009 - $0.5 million and
$1.0 million, respectively). The fair value of all common stock
options granted is estimated on the date of grant using the
lattice-based binomial option pricing model. The weighted-average
fair value of options granted during 2010 and the assumptions used
in their determination are as follows:
2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-average fair market value per option (C$) 2.86
Risk free interest rate (%) 2.77
Expected life (years) 5
Expected volatility (%) 48.43
Dividend per share 0.00
Expected forfeiture rate (non-executive employees) (%) 12
Early exercise (Year 1/Year 2/Year 3/Year 4/Year 5) 0%/10%/20%/30%/40%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share appreciation rights plan
In addition to the Company's stock option plan, the Company also
issues share appreciation rights under the share appreciation
rights plan, which was adopted in March 2010. Share appreciation
rights are similar to stock options except that the holder does not
have the right to purchase the underlying share of the Company and
instead the units are settled in cash. Units granted under the
share appreciation rights plan vest one-third on each of the first,
second and third anniversaries of the grant date. Share
appreciation rights granted expire five years after the grant
date.
Six Months Ended
June 30, 2010
----------------------------
Weighted-
Number Average
of Exercise
(000s, except per share amounts) Units Price (C$)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding, beginning of period - -
Granted 150 6.61
Exercised - -
Forfeited - -
----------------------------------------------------------------------------
Outstanding, end of period 150 6.61
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable, end of period - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The mark-to-market liability for the share appreciation rights
plan as at June 30, 2010 was included in accounts payable and
accrued liabilities on the Consolidated Balance Sheets.
8. CONTRIBUTED SURPLUS
Six Months Ended Year Ended
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contributed surplus, beginning of
period $ 6,691 $ 4,893
Stock-based compensation expense 881 2,011
Transfer to common shares on exercise
of options (2,416) (213)
----------------------------------------------------------------------------
Contributed surplus, end of period $ 5,156 $ 6,691
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. ACCUMULATED OTHER COMPREHENSIVE INCOME
The balance of accumulated other comprehensive income consists of the
following:
Six Months Ended Year Ended
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive
income, beginning of period $ 10,880 $ 10,880
Other comprehensive income - -
----------------------------------------------------------------------------
Accumulated other comprehensive
income, end of period $ 10,880 $ 10,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. PER SHARE AMOUNTS
In calculating the net income (loss) per share, basic and diluted, the
following weighted-average shares were used:
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
(000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted-average number of shares
outstanding 66,031 65,328 65,733 63,259
Dilutive effect of stock options 2,491 - 2,147 -
----------------------------------------------------------------------------
Weighted-average number of diluted
shares outstanding 68,522 65,328 67,880 63,529
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The treasury stock method assumes that the proceeds received
from the exercise of "in-the-money" stock options are used to
repurchase common shares at the average market price. In
calculating the weighted-average number of diluted common shares
outstanding for the three and six month periods ended June 30,
2010, the Company excluded 144,000 and 1,166,400 options,
respectively, as their exercise price was greater than the average
common share market price in this period. In calculating the
weighted-average number of diluted common shares outstanding for
the three and six month periods ended June 30, 2009, the Company
excluded all stock options outstanding because there was a net loss
in these periods.
11. CAPITAL DISCLOSURES
The Company's objectives when managing capital are to ensure the
Company will have the financial capacity, liquidity and flexibility
to fund the ongoing exploration and development of its oil and gas
assets. The Company relies on cash flow to fund its capital
investments. However, due to long lead cycles of some of its
developments and corporate acquisitions, the Company's capital
requirements may exceed its cash flow generated in any one period.
This requires the Company to maintain financial flexibility and
liquidity. The Company sets the amount of capital in proportion to
risk and manages to ensure that the total of the long-term debt is
not greater than two times the Company's funds flow from operations
for the trailing twelve months. For the purposes of measuring the
Company's ability to meet the above-stated criteria, funds flow
from operations is defined as the net income or loss before any
deduction for depletion, depreciation and accretion, amortization
of deferred financing charges, non-cash stock-based compensation,
and non-cash derivative (gain) loss on commodity contracts. Funds
flow from operations is a non-GAAP measure and may not be
comparable to similar measures used by other companies.
The Company defines and computes its capital as follows:
As at As at
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity $ 191,351 $ 163,690
Long-term debt, including the current
portion (net of unamortized transaction
costs) 49,977 49,799
Cash and cash equivalents (21,437) (16,177)
----------------------------------------------------------------------------
Total capital $ 219,891 $ 197,312
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's debt-to-funds flow ratio is computed as follows:
12 Months Trailing
----------------------------------------------------------------------------
(000s) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt, including the current
portion (net of unamortized transaction
costs) $ 49,977 $ 49,799
----------------------------------------------------------------------------
Cash flow from operating activities $ 33,739 $ 36,799
Changes in non-cash working capital 24,667 8,265
----------------------------------------------------------------------------
Funds flow from operations $ 58,406 $ 45,064
----------------------------------------------------------------------------
Ratio 0.9 1.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's financial objectives and strategy as described
above have remained substantially unchanged over the last two
completed fiscal years. These objectives and strategy are reviewed
on an annual basis. The Company believes that its ratios are within
reasonable limits, in light of the relative size of the Company and
its capital management objectives.
The Company is also subject to financial covenants in the
Revolving Credit Agreement that existed as at June 30, 2010. The
key financial covenants are as follows:
- Interest coverage ratio of greater than 3.5 to 1.0, calculated
as EBITDAX to interest expense, for the immediately preceding four
consecutive fiscal quarters. For the purposes of the financial
covenant calculations, EBITDAX shall mean Consolidated Net Income
before interest, income taxes, depreciation, depletion,
amortization, and accretion, unrealized derivative losses on
commodity contracts and stock based compensation expense.
- Indebtedness to EBITDAX is less than 2.0 to 1.0. For the
purposes of the financial covenant calculation, indebtedness shall
mean the balance of the Revolving Credit Facility, letters of
credit and any amounts payable in connection with a realized
derivative loss.
- Current ratio (current assets to current liabilities,
excluding the current portion of long-term debt) of greater than
1.0 to 1.0.
The Company is in compliance with all financial covenants at
June 30, 2010.
The new Borrowing Base Facility entered into subsequent to June
30, 2010 (see Note 5) will also subject the Company to certain
financial covenants. The key financial covenants on the new
Borrowing Base Facility are as follows:
- Consolidated Financial Indebtedness to EBITDAX will not exceed
3.0 to 1.0. For the purposes of this calculation, Consolidated
Financial Indebtedness shall mean the aggregate of all Financial
Indebtedness of the Company. EBITDAX shall be defined as
Consolidated Net Income before interest, income taxes,
depreciation, depletion, amortization, accretion of abandonment
liability, unrealized hedging losses and other similar non-cash
charges (including expenses related to stock options), minus
unrealized hedging gains and all non-cash income added to
Consolidated Net Income.
- Current ratio (current assets to current liabilities,
excluding the current portion of long-term debt) of greater than
1.0 to 1.0.
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Carrying Values and Estimated Fair Values of Financial Assets
and Liabilities
The Company has classified its cash and cash equivalents as
assets held for trading and its derivative commodity contracts as
financial assets or liabilities held for trading, which are both
measured at fair value with changes being recognized in net income.
Accounts receivable are classified as loans and receivables;
accounts payable and accrued liabilities, and long-term debt are
classified as other liabilities, all of which are measured at
amortized cost.
Carrying value and fair value of financial assets and
liabilities are summarized as follows:
(000s) June 30, 2010
----------------------------------------------------------------------------
Classification Carrying Value Fair Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial assets held-for-trading $ 21,630 $ 21,630
Loans and receivables 50,167 50,167
Other liabilities 71,994 72,017
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets and liabilities at June 30, 2010 that are measured at
fair value are classified into levels reflecting the method used to
make the measurements. Fair values of assets and liabilities
included in Level 1 are determined by reference to quoted prices in
active markets for identical assets and liabilities. Assets and
liabilities in Level 2 include valuations using inputs other than
quoted prices for which all significant inputs are observable,
either directly or indirectly. Level 3 valuations are based on
inputs that are unobservable and significant to the overall fair
value measurement.
The Company's cash and cash equivalents and risk management
contracts are assessed on the fair value hierarchy described above.
TransGlobe's cash and cash equivalents are classified as Level 1
and risk management contracts as Level 2. Assessment of the
significance of a particular input to the fair value measurement
requires judgment and may affect the placement within the fair
value hierarchy level.
Credit Risk
Credit risk is the risk of loss if the counter parties do not
fulfill their contractual obligations. The Company's exposure to
credit risk primarily relates to accounts receivable, the majority
of which are in respect of oil operations, and derivative commodity
contracts. The Company generally extends unsecured credit to these
parties and therefore the collection of these amounts may be
affected by changes in economic or other conditions. Management
believes the risk is mitigated by the size and reputation of the
companies to which they extend credit and an insurance program on a
portion of the receivable balance. The Company has not experienced
any material credit loss in the collection of accounts receivable
to date.
Trade and other receivables are analyzed in the table below.
With respect to the trade and other receivables that are not
impaired and past due, there are no indications as of the reporting
date that the debtors will not meet their payment obligations.
(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trade and other receivables at June 30, 2010
----------------------------------------------------------------------------
Neither impaired nor past due $ 19,301
Impaired (net of valuation allowance) -
Not impaired and past due in the following period:
Within 30 days 7,629
31-60 days 7,258
61-90 days 6,598
Over 90 days 9,381
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, the Company sold all of its 2010 production to one
purchaser. In Yemen, the Company sold all of its 2010 Block 32
production to one purchaser and all of its 2010 Block S-1
production to one purchaser. Management considers such transactions
normal for the Company and the international oil industry in which
it operates.
Market Risk
Market risk is the risk or uncertainty arising from possible
market price movements and their impact on the future performance
of a business. The market price movements that the Company is
exposed to include oil prices (commodity price risk), foreign
currency exchange rates and interest rates, all of which could
adversely affect the value of the Company's financial assets,
liabilities and financial results.
a) Commodity Price Risk
The Company's operational results and financial condition are
partially dependent on the commodity prices received for its oil
production. Commodity prices have fluctuated significantly during
recent years.
Any movement in commodity prices would have an effect on the
Company's financial condition. Therefore, the Company has entered
into various financial derivative contracts to manage fluctuations
in commodity prices in the normal course of operations. The
following contracts are outstanding at June 30, 2010:
Dated Brent
Pricing
Period Volume Type Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
----------
July 1, 2010-August 31, 2010 12,000 Bbls/month Financial $60.00-$84.25
Collar
July 1, 2010-August 31, 2010 9,000 Bbls/month Financial $40.00-$80.00
Collar
July 1, 2010-December 31, 2010 10,000 Bbls/month Financial $60.00
Floor
July 1, 2010-December 31, 2010 20,000 Bbls/month Financial $65.00
Floor
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The estimated fair value of unrealized commodity contracts is
reported on the Consolidated Balance Sheet, with any change in the
unrealized positions recorded to income. The Company assessed these
instruments on the fair value hierarchy and has classified the
determination of fair value of these instruments as Level 2, as the
fair values of these transactions are based on an approximation of
the amounts that would have been paid to, or received from,
counter-parties to settle the transactions outstanding as at the
Consolidated Balance Sheet date with reference to forward prices
and market values provided by independent sources. The actual
amounts realized may differ from these estimates.
When assessing the potential impact of commodity price changes
on its financial derivative commodity contracts, the Company
believes 10% volatility is a reasonable measure. The effect of a
10% increase in commodity prices on the derivative commodity
contracts would decrease the net income by $0.2 million for the
three and six months ended June 30, 2010. The effect of a 10%
decrease in commodity prices on the derivative commodity contracts
would increase the net income, for the three and six months ended
June 30, 2010, by $0.3 million.
Subsequent to June 30, 2010, TransGlobe bought out both
financial collar derivative commodity contracts. Immediately
subsequent to the buy-out, the following commodity contracts are
outstanding:
Dated Brent
Pricing
Period Volume Type Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
----------
July 1, 2010-December 31, 2010 10,000 Bbls/month Financial $60.00
Floor
July 1, 2010-December 31, 2010 20,000 Bbls/month Financial $65.00
Floor
----------------------------------------------------------------------------
b) Foreign Currency Exchange Risk
As the Company's business is conducted primarily in U.S. dollars
and its financial instruments are primarily denominated in U.S.
dollars, the Company's exposure to foreign currency exchange risk
relates to certain cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities denominated in Canadian
dollars. When assessing the potential impact of foreign currency
exchange risk, the Company believes 10% volatility is a reasonable
measure. The Company estimates that a 10% increase in the value of
the Canadian dollar against the U.S. dollar would result in an
increase in the net income for the three and six months ended June
30, 2010 of approximately $0.3 million and conversely a 10%
decrease in the value of the Canadian dollar against the U.S.
dollar would decrease the net income by said amount for the same
periods. The Company does not utilize derivative instruments to
manage this risk.
c) Interest Rate Risk
Fluctuations in interest rates could result in a significant
change in the amount the Company pays to service variable-interest,
U.S.-dollar-denominated debt. No derivative contracts were entered
into during 2010 to mitigate this risk. When assessing interest
rate risk applicable to the Company's variable-interest,
U.S.-dollar-denominated debt the Company believes 1% volatility is
a reasonable measure. The effect of interest rates increasing by 1%
would decrease the Company's net income, for the three and six
months ended June 30, 2010, by $0.1 million and $0.3 million,
respectively. The effect of interest rates decreasing by 1% would
increase the Company's net income, for the three and six months
ended June 30, 2010, by $0.1 million and $0.3 million,
respectively.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. Liquidity
describes a company's ability to access cash. Companies operating
in the upstream oil and gas industry require sufficient cash in
order to fund capital programs necessary to maintain and increase
production and Proved reserves, to acquire strategic oil and gas
assets and to repay debt.
The Company actively maintains credit facilities to ensure it
has sufficient available funds to meet current and foreseeable
financial requirements at a reasonable cost. The following are the
contractual maturities of financial liabilities at June 30,
2010:
(000s) Payment Due by Period(1,2)
----------------------------------------------------------------------------
Recognized Less More
in Financial Contractual than 1-3 4-5 than
Statements Cash Flows 1 year years years 5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable
and accrued
liabilities Yes-Liability $ 22,017 $22,017 $ - $ - $ -
Long-term debt:
Borrowing Base
Facility Yes-Liability 50,000 - 29,557 20,443 -
Office and
equipment leases No 10,954 1,509 2,880 1,872 4,693
Minimum work
commitments(3) No 7,876 2,923 4,953 - -
----------------------------------------------------------------------------
Total $ 90,847 $26,449 $37,390 $22,315 $ 4,693
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs related to certain leases,
interest on long-term debt and payments made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at
June 30, 2010 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
The Company actively monitors its liquidity to ensure that its
cash flows, credit facilities and working capital are adequate to
support these financial liabilities, in addition to the Company's
capital programs.
The existing banking arrangement at June 30, 2010 consists of a
Revolving Credit Facility of $60.0 million of which $50.0 million
was drawn. Subsequent to June 30, 2010, the Company entered into a
new five-year $100.0 million Borrowing Base Facility and paid out
the existing credit facility (see Note 5).
13. COMMITMENTS AND CONTINGENCIES
The Company is subject to certain office and equipment leases
(Note 12).
TransGlobe entered into a farm-out agreement and committed to
pay 100% of three exploration wells to a maximum of $9.0 million to
earn a 50% working interest in the East Ghazalat Concession in the
Western Desert of Egypt, subject to the approval of the Egyptian
Government. The Company completed drilling all three exploration
wells during the six month period ended June 30, 2010. The
Contractor (Joint Venture Partners) has entered the first, 24-month
extension period. These financial and work commitments for the
extension period were met in the prior period.
Pursuant to the Concession agreement for Nuqra Block 1 in Egypt,
the Contractor (Joint Venture Partners) has a minimum financial
commitment of $5.0 million ($4.4 million to TransGlobe) and a work
commitment for two exploration wells in the second exploration
extension. The second, 36-month extension period commenced on July
18, 2009. The Contractor has met the second extension financial
commitment of $5.0 million in the prior periods. At the request of
the Government, the Company provided a $4.0 million production
guarantee from the West Gharib Concession prior to entering the
second extension period.
Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint
Venture Partners) has a minimum financial commitment of $2.0
million ($0.1 million to TransGlobe) to drill one exploration well
during the second exploration period. The second, 30-month
exploration period commenced on January 12, 2009. The Contractor
has accepted a farm-in proposal from TOTAL E&P Yemen. Subject
to government approval, the Company will reduce its interest in the
concession to 20%.
Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint
Venture Partners) has a remaining minimum financial commitment of
$3.0 million ($0.8 million to TransGlobe) for one exploration well.
The first, 36-month exploration period commenced March 8, 2008. The
Company issued a $1.5 million letter of credit (expiring November
15, 2011) to guarantee the Company's performance under the first
exploration period. The letter is secured by a guarantee granted by
Export Development Canada.
Pursuant to the August 18, 2008 asset purchase agreement for a
25% financial interest in eight development leases on the West
Gharib Concession in Egypt, the Company has committed to paying the
vendor a success fee to a maximum of $7.0 million if incremental
reserve thresholds are reached in the East Hoshia (up to $5.0
million) and South Rahmi (up to $2.0 million) development leases,
to be evaluated annually. As at December 31, 2009, no additional
fees are due in 2010.
In the normal course of its operations, the Company may be
subject to litigations and claims. Although it is not possible to
estimate the extent of potential costs, if any, management believes
that the ultimate resolution of such contingencies would not have a
material adverse impact on the results of operations, financial
position or liquidity of the Company.
14. SEGMENTED INFORMATION
Egypt Yemen Total
----------------------------------------------------------------------------
Six Months Ended June 30
(000s) 2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil sales, net
of royalties
and other $ 52,342 $ 26,541 $ 20,700 $ 18,981 $ 73,042 $ 45,522
Segmented
expenses
Operating 7,487 5,454 4,547 4,953 12,034 10,407
Depletion and
depreciation 10,718 21,403 3,859 4,937 14,577 26,340
Income taxes 13,014 5,784 4,820 3,021 17,834 8,805
----------------------------------------------------------------------------
Total segmented
expenses 31,219 32,641 13,226 12,911 44,445 45,552
----------------------------------------------------------------------------
Segmented income
(loss) $ 21,123 $ (6,100) $ 7,474 $ 6,070 $ 28,597 $ (30)
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative loss
(gain) on
commodity
contracts
(Note 12a) (289) 3,681
General and
administrative 6,419 4,869
Interest on
long-term debt 1,003 1,329
Depreciation 104 92
Foreign exchange
loss (gain) 331 (654)
Other income (7) (32)
----------------------------------------------------------------------------
Total
non-segmented
expenses 7,561 9,285
----------------------------------------------------------------------------
Net income
(loss) $ 21,036 $ (9,315)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration and
development $ 26,197 $ 12,932 $ 1,662 $ 4,316 $ 27,859 $ 17,248
Corporate 74 158
----------------------------------------------------------------------------
Total capital
expenditures $ 27,933 $ 17,406
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt Yemen Total
----------------------------------------------------------------------------
Three Months Ended June 30
(000s) 2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil sales, net
of royalties
and other $ 26,255 $ 16,522 $ 9,383 $ 9,940 $ 35,638 $ 26,462
Segmented
expenses
Operating 3,845 2,667 2,402 2,534 6,247 5,201
Depletion and
depreciation 5,440 11,930 1,845 2,436 7,285 14,366
Income taxes 6,701 3,588 2,513 2,043 9,214 5,631
----------------------------------------------------------------------------
Total segmented
expenses 15,986 18,185 6,760 7,013 22,746 25,198
----------------------------------------------------------------------------
Segmented income
(loss) $ 10,269 $ (1,663) $ 2,623 $ 2,927 $ 12,892 $ 1,264
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative loss
(gain) on
commodity
contracts
(Note 12a) (311) 3,481
General and
administrative 3,034 2,363
Interest on
long-term debt 518 722
Depreciation 53 49
Foreign exchange
loss (gain) 167 (958)
Other income (7) (32)
----------------------------------------------------------------------------
Total
non-segmented
expenses 3,454 5,625
----------------------------------------------------------------------------
Net income
(loss) $ 9,438 $ (4,361)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration and
development $ 13,483 $ 5,623 $ 983 $ 2,771 $ 14,466 $ 8,394
Corporate 20 86
----------------------------------------------------------------------------
Total capital
expenditures $ 14,486 $ 8,480
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30 Dec. 31 June 30 Dec. 31 June 30 Dec. 31
2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and
equipment $134,548 $119,079 $ 45,298 $ 47,486 $179,846 $166,565
Goodwill 8,180 8,180 - - 8,180 8,180
Other 51,007 41,347 11,096 5,877 62,103 47,224
----------------------------------------------------------------------------
Segmented assets $193,735 $168,606 $ 56,394 $ 53,363 250,129 221,969
Non-segmented
assets 13,216 6,913
----------------------------------------------------------------------------
Total assets $263,345 $228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cautionary Statement to Investors:
This news release may include certain statements that may be
deemed to be "forward-looking statements" within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Such
statements relate to possible future events. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always,
identified by the use of words such as "seek", "anticipate",
"plan", "continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could", "might",
"should", "believe" and similar expressions. These statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. Although
TransGlobe's forward-looking statements are based on the beliefs,
expectations, opinions and assumptions of the Company's management
on the date the statements are made, such statements are inherently
uncertain and provide no guarantee of future performance. Actual
results may differ materially from TransGlobe's expectations as
reflected in such forward-looking statements as a result of various
factors, many of which are beyond the control of the Company. These
factors include, but are not limited to, unforeseen changes in the
rate of production from TransGlobe's oil and gas properties,
changes in price of crude oil and natural gas, adverse technical
factors associated with exploration, development, production or
transportation of TransGlobe's crude oil and natural gas reserves,
changes or disruptions in the political or fiscal regimes in
TransGlobe's areas of activity, changes in tax, energy or other
laws or regulations, changes in significant capital expenditures,
delays or disruptions in production due to shortages of skilled
manpower, equipment or materials, economic fluctuations, and other
factors beyond the Company's control. TransGlobe does not assume
any obligation to update forward-looking statements if
circumstances or management's beliefs, expectations or opinions
should change, other than as required by law, and investors should
not attribute undue certainty to, or place undue reliance on, any
forward-looking statements. Please consult TransGlobe's public
filings at www.sedar.com and www.sec.gov/edgar.shtml for further,
more detailed information concerning these matters.
Contacts: TransGlobe Energy Corporation Investor Relations Scott
Koyich 403.264.9888 investor.relations@trans-globe.com
www.trans-globe.com
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