TransGlobe Energy Corporation (TSX:TGL) (NASDAQ:TGA) ("TransGlobe"
or the "Company") is pleased to announce its financial and
operating results for the three and nine months ended September 30,
2012. All dollar values are expressed in United States dollars
unless otherwise stated.
HIGHLIGHTS
-- Increased production to an average of 18,143 Bopd (17,124 Bopd sales)
for the quarter;
-- Third quarter funds flow of $35.4 million;
-- Third quarter earnings of $11.8 million (includes a $4.4 million
unrealized loss on convertible debentures);
-- Spent $17.5 million on exploration, development and acquisitions during
the quarter;
-- Drilled 9 wells in the quarter resulting in 6 oil wells and 3 dry holes;
-- Ended the quarter with $45.7 million in cash and cash equivalents;
positive working capital of $252.2 million or $117.4 million net of debt
(including convertible debentures);
-- Closed corporate acquisition of Cepsa on July 26, 2012, providing the
remaining operated 50% working interest in the South Alamein concession;
-- The Company's first oil production in the Western Desert of Egypt;
-- The Company was the successful bidder on four concessions offered in the
EGPC 2011 bid round (NW Gharib, SW Gharib, SE Gharib and S Ghazalat).
A conference call to discuss TransGlobe's 2012 third quarter
results presented in this news release will be held Thursday,
November 8, 2012 at 9:00 AM Mountain Time (11:00 AM Eastern Time)
and is accessible to all interested parties by dialing
1-416-981-9005 or toll-free 1-800-736-4610 (see also TransGlobe's
news release dated November 1, 2012). The webcast may be accessed
at
http://events.digitalmedia.telus.com/transglobe/110812/index.php
FINANCIAL AND OPERATING RESULTS
(US$000s, except per share, price, volume amounts and %
change)
Three months ended Nine months ended
September 30 September 30
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Financial % %
2012 2011 Change 2012 2011 Change
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Oil revenue 152,624 128,265 19 460,128 339,875 35
Oil revenue, net of
royalties 74,540 71,769 4 225,385 187,145 20
Derivative gain
(loss) on commodity
contracts - (13) - (125) (599) 79
Production and
operating expense 11,622 9,762 19 35,024 26,404 33
General and
administrative
expense 7,350 4,357 69 20,829 13,591 53
Depletion,
depreciation and
amortization
expense 11,005 10,300 7 34,516 26,263 31
Income taxes 22,742 19,442 17 65,660 53,146 24
Funds flow from
operations(i) 35,397 37,980 (7) 106,659 93,507 14
Basic per share 0.49 0.52 1.46 1.29
Diluted per share 0.47 0.51 1.41 1.25
Net earnings 11,774 26,110 (55) 52,898 50,873 4
Net earnings -
diluted 11,774 26,110 (55) 52,898 50,873 4
Basic per share 0.16 0.36 0.72 0.70
Diluted per share 0.16 0.35 0.70 0.68
Capital expenditures 12,579 20,160 (38) 31,501 59,544 (47)
Corporate
acquisition 4,881 - - 27,978 - -
Working capital 252,242 164,132 54 252,242 164,132 54
Long-term debt,
including current
portion 31,878 57,303 (44) 31,878 57,303 (44)
Convertible
debentures 102,920 - - 102,920 - -
Common shares
outstanding
Basic (weighted-
average) 73,450 72,993 1 73,249 72,358 1
Diluted (weighted-
average) 75,621 75,371 - 75,501 74,906 1
Total assets 635,529 465,262 37 635,529 465,262 37
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(i) Funds flow from operations is a measure that represents cash
generated from operating activities before changes in non-cash
working capital and may not be comparable to measures used by other
companies.
Operating
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Average production
volumes (Bopd) 18,143 13,406 35 17,284 12,158 42
Average sales
volumes (Bopd) 17,124 13,406 28 16,942 12,158 39
Average price ($ per
Bbl) 96.88 104.00 (7) 99.12 102.40 (3)
Operating expense ($
per Bbl) 7.38 7.92 (7) 7.54 7.96 (5)
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Corporate Summary
TransGlobe Energy Corporation's ("TransGlobe" or the "Company")
total production increased to a record 18,143 barrels of oil per
day ("Bopd") during the quarter. The increase in production over
Q-2 was due to Block S-1 in Yemen coming back on production July
27th, production increases at West Bakr and new production at East
Ghazalat. Total oil sales for the Company averaged 17,124 Bopd
during the quarter, 1,019 Bopd less than production as Block S-1
production in Yemen was held in inventory and sold subsequent to
quarter end.
The Safwa field in East Ghazalat was placed on production in
mid-September and represents the Company's first oil production in
the Western Desert. The Safwa field is producing approximately
1,000 Bopd (500 Bopd to TransGlobe) from the four existing
wells.
In the Eastern desert the Company continued drilling at West
Gharib and West Bakr with a drilling rig on each concession.
Concurrent with the drilling activities, the Company advanced a
number of facility projects focused on the integration of the West
Bakr and West Gharib assets to improve delivery of production to
the Government-controlled ("GPC") processing and handling
facilities. In early November the Company expects to move a portion
of the Hana/Hana West production in West Gharib through the West
Bakr system pipeline, which will partially alleviate some of the
production constraints in West Gharib. The Company has
approximately 300 Bopd of production shut-in and an additional
2,400 Bopd (12 Nukhul wells at 200 Bopd using the average 90 day
Upper Nukhul production rate after completion and stimulation) of
production behind casing at West Gharib due to facility constraints
at the GPC receiving terminal. The Company commenced a six-well
completion and stimulation program in October to evaluate new
pools/extensions and to provide additional productive capacity; the
remaining wells will be completed in 2013 as required. The Company
expects to be able to bring on the shut-in production through the
winter and bring on the additional behind casing production to
off-set natural declines during 2013.
During the quarter TransGlobe acquired Cepsa Egypt SA B.V. which
holds and is operator of the remaining 50% interest in South
Alamein. TransGlobe now holds a 100% interest in the South Alamein
concession. The Company is advancing an initial five-well drilling
program at South Alamein which could commence prior to year end,
depending upon the approval of the necessary well permits. In
addition, the Company finalized the drilling plans for the Al
Azayem #1 exploration well on South Mariut (60% operated interest).
In October drilling commenced on the 14,500 foot Al Azayem #1
exploration well which represents the Company's first operated well
in the Western desert and the start of a significant exploration
drilling program in the Western desert.
Dated Brent oil prices were strong in the third quarter,
averaging $109.61 per barrel. The West Gharib and West Bakr crude
is sold at a quality discount to Dated Brent and received a blended
price of $96.72 during the quarter. The Company had funds flow of
$35.4 million and ended the quarter with positive working capital
of $252.2 million or $117.4 million net of debt (including the
convertible debentures). The Company's accounts receivable balance,
(net of excess cost oil due to Egyptian General Petroleum Company
("EGPC")), increased to $222.8 million. Subsequent to the quarter a
tanker lifting of approximately 512,000 barrels allocated to the
Company by EGPC, was completed October 24th to 26th. The proceeds
of that lifting, estimated at $52.5 million, are due to be received
in November directly from the purchaser. This payment is expected
to bring the accounts receivable balance in-line with the
historical average of five to eight months aging.
The Company had net earnings in the quarter of $11.7 million
($0.16/share), which included a $4.4 million ($0.06/share) non-cash
unrealized loss on convertible debentures. The $4.4 million loss
represents a fair value adjustment in accordance with IFRS, but
does not represent a cash outflow or a change in the future cash
outlay required to repay the convertible debentures.
In the Company's view, the political environment in the Arab
Republic of Egypt ("Egypt") continues to improve and business
processes and operations are proceeding as normal. The Company has
a strong financial position and continues to pursue business
development opportunities both within and outside of Egypt.
ARAB REPUBLIC OF EGYPT
West Gharib, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
The Company drilled five wells during the third quarter in the
Arta/East Arta area resulting in three Nukhul oil wells (two new
pools), one potential Thebes oil well (new pool) and one dry hole.
A step-out well was drilled near the Fadl field subsequent to the
quarter which encountered the target zone on the down-thrown side
of a fault. The well has been plugged back to surface casing and
suspended as a potential future sidetrack location. The drilling
rig is currently drilling a step-out location at Hoshia. It is
expected that the drilling rig will continue working in West Gharib
throughout 2013.
Production
Production from West Gharib averaged 12,182 Bopd to TransGlobe
during the third quarter, essentially flat (1% or 174 Bopd lower)
with the previous quarter. The production gains to the 12,700 Bopd
to 13,000 Bopd level that were achieved in the third quarter were
offset by several issues.
In August and early September production was lower due to
performance issues associated with the incumbent trucking
contractor during the tender process for a new trucking contract. A
new trucking contract was awarded in the fourth quarter which has
improved trucking operations.
At the end of September, production was impacted by an 8-day
illegal labor protest at the West Gharib field entrance which shut
down crude oil trucking from West Gharib from September 30 to
October 7. The labor protest involved subcontractor day-rate
workers who were seeking full time employment. The protest was
ruled illegal by the courts on October 7 and disbanded peacefully
by the Ministry of Interior. It is estimated that approximately
100,000 barrels of production was deferred during the eight day
protest, which will impact fourth quarter sales by approximately
950 Bopd.
Production averaged 9,867 Bopd to TransGlobe during October,
primarily due to the illegal labor protest. Current production in
November is approximately 12,800 Bopd.
Of the 21 wells drilled in 2012, 13 wells are awaiting
completion and stimulation. The wells will be completed and brought
on to production to offset natural declines and as additional sales
capacity becomes available at the GPC terminal over the next 12
months. The Company commenced a six-well completion and stimulation
program in mid-October to evaluate new pools and pool
extensions.
Facility Projects
The Company has completed a number of facility projects and
several more are underway at West Gharib and West Bakr to reduce
the amount of water trucked with the oil from West Gharib and
increase sales capacity at GPC. The larger facility projects
completed and underway are summarized below:
-- South Arta Multi Well Battery ("MWB") completed December 2011;
-- Hoshi MWB completed May 2012;
-- Hana West Treater completed July 2012;
-- West Bakr K station offloading system for West Gharib production
targeting Q-4 2012;
-- Initially trucking the Hana/Hana West production to K station
completed early November 2012.
-- Hana Treater facility targeting Q-4 2012;
-- East Arta MWB in the northern portion of the field targeting Q-1 2013;
-- Arta Central Processing Facility ("CPF") Q-4 2013.
-- Expand tie-in facilities to allow West Gharib crude from Northern fields
production (Hoshia, Arta, East Arta) to tie into the West Bakr pipeline
facilities.
The Company continues to progress a number of longer term
infrastructure projects in the West Gharib/West Bakr fields to
deliver West Gharib production to GPC by pipeline and thereby
eliminate oil trucking outside the West Gharib field area.
Quarterly West Gharib Production
(Bopd)
2012 2011
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Q-3 Q-2 Q-1 Q-4
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Gross production rate 12,182 12,356 12,065 11,280
TransGlobe working interest 12,182 12,356 12,065 11,280
TransGlobe net (after royalties) 6,757 6,847 6,581 6,255
TransGlobe net (after royalties and
tax)(i) 4,741 4,805 4,536 4,358
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(i) Under the terms of the West Gharib Production Sharing concession,
royalties and taxes are paid out of the Government's share of production
sharing oil.
West Bakr, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
The Company drilled two wells during the third quarter resulting
in one oil well in the H field and one directional well in the K
field (K27) which had to be abandoned prior to reaching the target
zones due to drilling problems in a thick shale section. Subsequent
to the quarter, the Company has drilled an oil well in the K field
(K28) which will be completed and placed on production from one of
the three oil zones encountered.
The rig is currently drilling on the M field targeting a new
pool. The initial three-well drilling program for 2012 has been
increased to eight wells (two wells in H, two wells in M and four
wells in K). In addition to the planned eight-well drilling
program, the West Bakr team has identified an additional 14
drilling targets. It is expected that the drilling rig will
continue working in West Bakr throughout 2013.
Production
Production from West Bakr averaged 4,590 Bopd to TransGlobe
during the third quarter, a 9% (360 Bopd) increase from the
previous quarter. Production increases from new wells and
recompletions were offset during the quarter by a number of
unscheduled pump changes and some initial sand clean-outs on new
producers.
Production has averaged 4,863 Bopd in October primarily due to
better pump performance. The Company expects to achieve improved
pump performance similar to the West Gharib operations as equipment
is repaired or replaced with better quality components over the
balance of 2012.
Quarterly West Bakr Production
(Bopd)
2012 2011
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Q-3 Q-2 Q-1 Q-4(i)
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Gross production rate 4,590 4,230 4,358 138
TransGlobe working interest 4,590 4,230 4,358 138
TransGlobe net (after royalties) 1,268 1,244 1,239 45
TransGlobe net (after royalties and
tax)(ii) 939 941 926 35
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(i) Purchased December 29, 2011, includes three days of
production.
(ii) Under the terms of the West Bakr Production Sharing
concession, royalties and taxes are paid out of the Government's
share of production sharing oil.
East Ghazalat, Arab Republic of Egypt (50% working interest)
Operations and Exploration
During the third quarter the Company finished drilling the East
Ghazalat 2x exploration well (Eradah prospect), which was
abandoned.
Production
During the quarter the operator completed and equipped the four
existing Safwa wells for production and installed production
facilities at Safwa. First oil production started September 9th at
200 Bopd (100 Bopd to TransGlobe) from one of the four wells with
the other three wells placed on production over the following 30
days. Production from East Ghazalat averaged 82 Bopd to TransGlobe
during the third quarter. Production during October averaged 549
Bopd to TransGlobe, with the four Safwa wells on production.
Production is trucked to a receiving terminal at the Dapetco
operated South Dabaa facility approximately 35 kilometers southwest
of Safwa.
Quarterly East Ghazalat Production
(Bopd)
2012 2011
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
Gross production rate 163 - - -
TransGlobe working interest 82 - - -
TransGlobe net (after royalties) 41 - - -
TransGlobe net (after royalties and
tax)(i) 33 - - -
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(i) Under the terms of the East Ghazalat Production Sharing
concession, royalties and taxes are paid out of the Government's
share of production sharing oil.
South Alamein, Arab Republic of Egypt (100% working interest,
operated)
TransGlobe now holds a 100% working interest in the South
Alamein Production Sharing Concession ("PSC") through two,
wholly-owned subsidiary companies. On June 7, 2012 the Company
acquired a company from EP Energy LLC which holds a 50% interest in
the South Alamein PSC. On July 26, 2012 the Company acquired a
company from COMPANIA ESPANOLA DE PETROLEOS, S.A.U. which holds the
remaining 50% working interest in the South Alamein PSC.
The South Alamein concession is located onshore in the Western
Desert of Egypt and includes portions of the prolific Alamein and
Tiba basins. The current size of this exploration concession is
1,423 square kilometers (355,832 acres), and is in the final
two-year exploration phase. The concession includes an oil
discovery well, Boraq-2X. The primary Cretaceous zone tested at a
rate of 800 to 1,323 Bopd of 34 API oil with no water and a 13%
pressure drawdown during a 28 hour drill stem test ("DST"). A
secondary Cretaceous zone tested at a rate of 274 Bopd of 32-35 API
oil and 4% water during a 23 hour DST. Test rates are not
necessarily indicative of long-term performance but it is
anticipated that the well should be capable of producing
approximately 1,700 Bopd.
Operations and Exploration
No wells were drilled during the third quarter. The Company has
scheduled a drilling rig to commence an initial five-well drilling
program starting in December 2012 or early 2013 which is dependent
on receiving the necessary well permits. The program will include
two appraisal wells at Boraq and three exploration wells. It is
expected that a drilling rig will remain in the South Alamein
concession throughout 2013. The Company is targeting first
production from the Boraq discovery in mid-2013.
South Mariut, Arab Republic of Egypt (60% working interest,
operated)
The South Mariut concession is located in the Western Desert of
Egypt and is onshore along the Mediterranean coastline, adjacent to
prolific offshore hydrocarbon fields and southwest of the city of
Alexandria. The current gross size of this exploration concession
is approximately 3,350 square kilometers (828,000 acres). The South
Mariut concession is in the first, three-year extension period
which expires on April 5, 2013. A further two-year extension is
available under the PSC.
Operations and Exploration
No wells were drilled during the third quarter. Subsequent to
the quarter, drilling commenced on October 10th at Al Azayem #1.
The well is targeting several stacked horizons with four-way
closures identified on 3-D seismic, and drilling is expected to
take approximately 90 days. The total depth is expected at
approximately 14,500 feet in Jurassic reservoirs. In addition to
the Al Azayem #1 well, the Company is in the process of finalizing
the selection of two additional exploration prospects for drilling
in early 2013. It is expected that the joint venture partners will
finalize the second and third exploration locations prior to
year-end.
Nuqra Block 1, Arab Republic of Egypt (71.43% working interest,
operated)
Operations and Exploration
The Nuqra Block exploration concession expired on July 17, 2012
and was relinquished. All exploration commitments were met.
YEMEN WEST- Marib Basin
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the quarter.
Production
Production from Block S-1 re-commenced on July 27, 2012
following repairs to the Marib export pipeline to the Ras Eisa port
on the Red Sea, which was damaged in October 2011. During the
quarter TransGlobe's sales production averaged 63 Bopd which
represents the Company's share of production for the last five days
of July at 1,140 Bopd. The gross field production for the third
quarter averaged 3,860 Bopd (965 Bopd to TransGlobe). In October
gross field production averaged approximately 6,852 Bopd (1,713
Bopd to TransGlobe).
The Company agreed to amend the Block S-1 marketing contract
effective July 2012 from a monthly purchase contract to a tanker
lifting sales contract. The unsold third quarter inventory was
lifted and sold with October production in early November. Based on
current production volumes it is anticipated that tanker liftings
could occur approximately once per quarter from Block S-1. It is
expected that sales production rates and the field production rates
will vary quarter to quarter depending on the timing of tanker
liftings during the respective quarter.
Quarterly Block S-1 Production and
Sales (Bopd)
2012 2011
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Q-3 Q-2 Q-1 Q-4
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Gross field production rate 3,860 - - 736
Gross sales production rate 252 - - 736
TransGlobe working interest 63 - - 184
TransGlobe net (after royalties) 41 - - 93
TransGlobe net (after royalties and
tax)(ii) 36 - - 69
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(i) Partial quarter, production started July 27, 2012.
(ii) 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 was planned as part of
the 2011 Block S-1/75 drilling program however the drilling program
was cancelled in the first quarter of 2011 due to logistics and
security concerns.
YEMEN EAST- Masila Basin
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
One oil well was drilled in the Tasour field during the third
quarter. The well was placed on production in early August and is
producing approximately 380 Bopd.
Production
Production sales from Block 32 averaged 1,501 Bopd (207 Bopd to
TransGlobe) during the quarter. The reported gross sales production
rate represents the amount of oil that was lifted and sold during
the quarter. It is expected that sales production rates and the
field production rates will vary quarter to quarter depending on
the timing of tanker lifting's during the respective quarter.
The actual field production during the third quarter averaged
2,532 Bopd (350 Bopd to TransGlobe) which is approximately 2% lower
than the previous quarter due to natural declines and a leak in the
export pipeline that had curtailed sales for five days during
September.
Field production averaged approximately 2,509 Bopd (346 Bopd to
TransGlobe) during October.
Quarterly Block 32 Production and
Sales (Bopd)
2012 2011
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
Gross field production rate 2,532 2,575 2,704 3,276
Gross sales production rate 1,501 2,839 2,151 3,276
TransGlobe working interest 207 392 297 452
TransGlobe net (after royalties) 123 232 166 254
TransGlobe net (after royalties and
tax)(i) 96 179 120 188
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(i) Under the terms of the Block 32 PSA, royalties and taxes are
paid out of the Government's share of production sharing oil.
Block 72, Republic of Yemen (20% working interest)
Operations and Exploration
No new wells were drilled during the quarter. In July the joint
venture partners met and approved the Gabdain #3 well, subject to
the resolution of logistic/security issues in the area. The current
exploration phase of the PSA has been extended to October 12,
2013.
Gabdain #3 is targeting a large fractured basement prospect
originally drilled at Gabdain #1 in 2010. Gabdain #1 tested
approximately 170 Bopd light oil from the Kholan formation with 85%
drawdown (which overlies the basement) during a two-day production
test. Test rates are not necessarily indicative of long-term
performance. The basement fractures at Gabdain #1 were tight and
non-productive. The Gabdain #3 well is located approximately five
kilometers from Gabdain #1 and is targeting fractures in the
basement. It is expected that the 3,500 meter (11,500 feet)
exploration well will cost approximately $11.5 million ($2.3
million to TransGlobe).
November 6, 2012
Management's discussion and analysis ("MD&A") should be read
in conjunction with the unaudited Condensed Consolidated Interim
Financial Statements for the three and nine months ended September
30, 2012 and 2011 and the audited financial statements and MD&A
for the year ended December 31, 2011 included in the Company's
annual report. Additional information relating to the Company,
including the Company's Annual Information Form, is on SEDAR at
www.sedar.com. The Company's Form 40-F may be found on EDGAR at
www.sec.gov.
READER ADVISORIES
Forward Looking Statements
Certain statements or information contained herein may
constitute forward-looking statements, or information under
applicable securities laws, including management's assessment of
future plans and operations, drilling plans and the timing thereof,
commodity price risk management strategies, adapting to the current
political situations in Egypt and Yemen, reserve estimates, the
resolution of potential litigation and claims and impact on the
Company of the costs and resolutions, management's expectation for
results of operations for 2012, including expected 2012 average
production, funds flow from operations, the 2012 capital program
for exploration and development, the timing and method of financing
thereof, method of funding drilling commitments, commodity prices
and expected volatility thereof and the use of proceeds from recent
financings.
Forward-looking statements or information relate to the
Company's future events or performance. All statements other than
statements of historical fact may be forward-looking statements or
information. Such statements or information 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.
Forward-looking statements or information necessarily involve
risks including, without limitation, risks associated with oil and
gas exploration, development, exploitation, production, marketing
and transportation, loss of markets, economic and political
instability, volatility of commodity prices, currency fluctuations,
imprecision of reserve estimates, environmental risks, competition
from other producers, inability to retain drilling rigs and other
services, incorrect assessment of the value of acquisitions,
failure to realize the anticipated benefits of acquisitions, delays
resulting from or inability to obtain required regulatory approvals
and ability to access sufficient capital from internal and external
sources. The recovery and reserve estimates of the Company's
reserves are estimates only and there is no guarantee that the
estimated reserves will be recovered. Events or circumstances may
cause actual results to differ materially from those predicted, as
a result of the risk factors set out and other known and unknown
risks, uncertainties, and other factors, many of which are beyond
the control of the Company.
In addition, forward-looking statements or information are based
on a number of factors and assumptions which have been used to
develop such statements and information in order to provide
shareholders with a more complete perspective on the Company's
future operations. Such statements and information may prove to be
incorrect and readers are cautioned that such statements and
information may not be appropriate for other purposes. Although the
Company believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements or
information because the Company can give no assurance that such
expectations will prove to be correct. In addition to other factors
and assumptions which may be identified herein, assumptions have
been made regarding, among other things: the impact of increasing
competition; the general stability of the economic and political
environment in which the Company operates; the timely receipt of
any required regulatory approvals; the ability of the Company to
obtain qualified staff, equipment and services in a timely and cost
efficient manner; drilling results; the ability of the operator of
the projects which the Company has an interest in to operate the
field in a safe, efficient and effective manner; the ability of the
Company to obtain financing on acceptable terms; field production
rates and decline rates; the ability to replace and expand oil and
natural gas reserves through acquisition, development and
exploration; the timing and costs of pipeline, storage and facility
construction and expansion and the ability of the Company to secure
adequate product transportation; future commodity prices; currency,
exchange and interest rates; the regulatory framework regarding
royalties, taxes and environmental matters in the jurisdictions in
which the Company operates; and the ability of the Company to
successfully market and receive payment for its oil and natural gas
products.
Readers are cautioned that the foregoing list is not exhaustive
of all factors and assumptions which have been used. As a
consequence, actual results may differ materially from those
anticipated in the forward-looking statements. Additional
information on these and other factors that could affect the
Company's operations and financial results are included in reports
on file with Canadian securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com), EDGAR website
(www.sec.gov) and at the Company's website (www.trans-globe.com).
Furthermore, the forward-looking statements or information
contained herein are made as at the date hereof and the Company
does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result
of new information, future events or otherwise, except as may be
required by applicable securities laws.
The reader is further cautioned that the preparation of
financial statements in accordance with IFRS requires management to
make certain judgments and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses. Estimating
reserves is also critical to several accounting estimates and
requires judgments and decisions based upon available geological,
geophysical, engineering and economic data. These estimates may
change, having either a negative or positive effect on net earnings
as further information becomes available, and as the economic
environment changes.
Additional 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 IFRS. Funds flow from operations is a 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 Nine Months Ended
September 30 September 30
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($000s) 2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating activities 2,368 3,456 28,742 61,300
Changes in non-cash working capital 33,029 34,524 77,917 32,207
----------------------------------------------------------------------------
Funds flow from operations(i) 35,397 37,980 106,659 93,507
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Funds flow from operations does not include interest or
financing costs. Interest expense is included in financing costs on
the Condensed Consolidated Interim Statements of Earnings and
Comprehensive Income. Cash interest paid is reported as a financing
activity on the Condensed Consolidated Interim Statements of Cash
Flows.
Debt-to-funds flow ratio
Debt-to-funds flow is a 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,
plus convertible debentures 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 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.
BUSINESS ACQUISITIONS
On July 26, 2012, the Company completed a Share Purchase
Agreement to acquire 100% of the common shares of Cepsa Egypt SA
B.V. ("Cepsa Egypt"), a wholly-owned subsidiary of Compania
Espanola De Petroleos, S.A.U. ("Cepsa"), a company registered in
Spain. Cepsa Egypt holds an operated 50% working interest in the
South Alamein Production Sharing concession ("PSC") in Egypt. As a
result, the Company now holds a 100% working interest in the South
Alamein concession through two wholly-owned subsidiaries. The Cepsa
transaction was structured as an all-cash deal, effective July 1,
2012, funded through working capital. Total consideration for the
transaction was $4.9 million, which represents the initial $3.0
million base purchase price plus $1.9 million in consumable
drilling equipment inventory (which is classified as exploration
and evaluation assets), working capital and other closing
adjustments.
On June 7, 2012, the Company completed a Share Purchase
Agreement to acquire 100% of the common shares of a wholly-owned
subsidiary of EP Energy LLC which holds, though wholly-owned
subsidiaries, a non-operated 50% interest in the South Alamein PSC
in Egypt and an operated 60% working interest in the South Mariut
PSC in Egypt. The South Alamein concession covers an area of
355,832 acres, and an extensive 3-D seismic covers the entire area.
There is currently one oil discovery well in South Alamein. The
South Mariut concession covers an area of approximately 828,000
acres and includes the approval of a 14,500 foot exploration well
which began drilling on October 10, 2012. The transaction was
structured as an all-cash deal, effective April 1, 2012, funded
through working capital and the proceeds of the issuance of
convertible debentures. Total consideration for the transaction was
$23.3 million, which represents the initial $15.0 million base
purchase price plus $8.3 million in consumable drilling equipment
inventory (which is classified as exploration and evaluation
assets), working capital and other closing adjustments.
SELECTED QUARTERLY FINANCIAL INFORMATION
2012 2011 2010
----------------------------------------------------------------------------
($000s,
except per
share,
price and
volume
amounts) Q-3 Q-2 Q-1 Q-4 Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
Average
production
volumes
(Bopd) 18,143 16,978 16,720 12,054 13,406 11,826 11,218 10,789
Average
sales
volumes
(Bopd) 17,124 16,978 16,720 12,054 13,406 11,826 11,218 10,789
Average
price
($/Bbl) 96.88 95.84 104.78 99.12 104.00 105.57 97.06 79.83
Oil sales 152,624 148,078 159,426 109,919 128,265 113,615 97,995 79,240
Oil sales,
net of
royalties 74,540 73,633 77,212 60,609 71,769 62,513 52,863 45,198
Cash flow
from
operating
activities 2,368 24,603 1,771 2,330 3,456 54,354 3,490 17,010
Funds flow
from
operations
(i) 35,397 35,174 36,088 26,469 37,980 30,597 24,930 19,355
Funds flow
from
operations
per share
- Basic 0.49 0.48 0.49 0.36 0.52 0.42 0.35 0.29
- Diluted 0.47 0.43 0.48 0.35 0.51 0.40 0.34 0.28
Net earnings 11,774 30,149 10,975 30,519 26,110 21,874 2,889 8,932
Net earnings
- diluted 11,774 20,821 10,975 30,519 26,110 21,874 2,889 8,932
Net earnings
per share
- Basic 0.16 0.41 0.15 0.42 0.36 0.30 0.04 0.13
- Diluted 0.16 0.25 0.15 0.41 0.35 0.29 0.04 0.13
----------------------------------------------------------------------------
Total assets 635,529 620,937 648,012 525,806 465,262 420,956 404,184 345,625
Cash and
cash
equivalents 45,732 72,230 127,313 43,884 105,007 122,659 86,353 57,782
Convertible
debentures 102,920 95,043 105,835 - - - - -
Total long-
term debt,
including
current
portion 31,878 37,855 57,910 57,609 57,303 56,998 56,731 86,420
Debt-to-
funds flow
ratio (ii) 1.0 1.0 1.2 0.5 0.5 0.6 0.7 1.1
----------------------------------------------------------------------------
(i) Funds flow from operations is a measure that represents cash
generated from operating activities before changes in non-cash
working capital, and may not be comparable to measures used by
other companies.
(ii) Debt-to-funds flow ratio is a measure that represents total
long-term debt (including current portion) and convertible
debentures over funds flow from operations for the trailing 12
months, and may not be comparable to measures used by other
companies.
During the third quarter of 2012, TransGlobe has:
-- Maintained a strong financial position, reporting a debt-to-funds flow
ratio of 1.0 at September 30, 2012;
-- Reported net earnings of $11.8 million;
-- Reported net earnings of $16.1 million prior to the unrealized fair
value adjustment on convertible debentures;
-- Achieved funds flow from operations of $35.4 million; and
-- Spent $17.5 million on capital programs and acquisitions, which were
funded entirely with cash on hand.
The accounting for the convertible debentures continued to have
a significant impact on important components of the Company's
financial statements:
-- Reported a decrease in net earnings of $18.4 million from the second
quarter of 2012. This decrease was due in large part to the unrealized
gain on convertible debentures of $8.8 million recognized in the second
quarter of 2012, combined with an unrealized loss of $4.4 million
recognized on the convertible debentures in the third quarter of 2012;
and
-- Reported a decrease in net earnings of $14.3 million or 55% in the third
quarter of 2012 compared to the third quarter of 2011, which was also
due partly to an unrealized loss on convertible debentures of $4.4
million in the second quarter of 2012.
2012 VARIANCES
$ Per Share
$000s Diluted % Variance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q3-2011 net earnings 26,110 0.35
----------------------------------------------------------------------------
Cash items
Volume variance 32,780 0.44 126
Price variance (8,421) (0.11) (32)
Royalties (21,588) (0.29) (82)
Expenses:
Production and operating (1,860) (0.02) (7)
Cash general and
administrative (2,237) (0.03) (9)
Exploration 202 - 1
Current income taxes (1,298) (0.02) (5)
Realized foreign exchange gain (113) - -
Interest on long-term debt (1,614) (0.02) (6)
Other income (48) - -
----------------------------------------------------------------------------
Total cash items variance (4,197) (0.05) (14)
----------------------------------------------------------------------------
Non-cash items
Unrealized derivative gain 13 - (1)
Unrealized foreign exchange
gain (2,812) (0.04) (11)
Depletion, depreciation and
amortization (705) (0.01) (3)
Unrealized gain (loss) on
financial instruments (4,361) (0.06) (17)
Impairment loss 68 - -
Stock-based compensation (762) (0.01) (3)
Deferred income taxes (2,002) (0.03) (8)
Deferred lease inducement 6 - -
Amortization of deferred
financing costs 416 0.01 2
----------------------------------------------------------------------------
Total non-cash items variance (10,139) (0.14) (41)
----------------------------------------------------------------------------
Q3-2012 net earnings 11,774 0.16 (55)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings decreased to $11.8 million in Q3-2012 compared to
$26.1 million in Q3-2011, which was mainly due to an unrealized
loss on financial instruments (convertible debentures) combined
with increases in deferred tax expense and cash general and
administrative expenses in Q3-2012. The earnings impact of
increased volumes were mostly offset by price reductions and
increases in royalties, income taxes, operating costs and foreign
exchange fluctuations. Increased expenses were a result of the
increased volumes.
The non-cash unrealized loss on financial instruments
(convertible debentures) has arisen because the Company has elected
to carry the convertible debenture liability at fair value on its
Condensed Consolidated Interim Balance Sheets. Fair value is
determined based on the quoted market price of the convertible
debentures as at the period end date. Based on quoted market
prices, a $4.4 million increase to the convertible debenture
liability was recorded as at September 30, 2012, with a
corresponding loss recorded on the Condensed Consolidated Interim
Statement of Earnings and Comprehensive Income. As the market price
of the convertible debentures fluctuates from period to period, so
will the fair value of the convertible debenture liability, and
therefore so will the unrealized gain or loss on financial
instruments (convertible debentures). This fair value adjustment
has had a significant impact on net earnings in the first three
quarters of 2012, and, depending on the magnitude of fluctuations
in the trading price of the convertible debentures in future
periods, could have a material impact on the Company's net earnings
in future periods. While this fair value adjustment is made in
accordance with IFRS, it does not represent a cash gain or loss or
a change in the future cash outlay required to redeem the
convertible debentures.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
2012 2011
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
Dated Brent average oil price
($/Bbl) 109.61 108.19 118.49 109.31 113.44
U.S./Canadian Dollar average
exchange rate 0.995 1.006 1.001 1.023 0.980
----------------------------------------------------------------------------
The price of Dated Brent oil averaged 3% lower in Q3-2012
compared with Q3-2011. All of the Company's production is priced
based on Dated Brent and shared with the respective governments
through Production Sharing Agreements. When the price of oil goes
up, it takes fewer barrels to recover costs (cost recovery barrels)
which are assigned 100% to the Company. The contracts provide for
cost recovery per quarter up to a maximum percentage of total
revenue. Typically maximum cost recovery or cost oil ranges from
25% to 30% in Egypt and 50% to 60% in Yemen. Generally the balance
of the production is shared with the respective governments
(production sharing oil). Depending on the contract, the government
receives 70% to 86% of the production sharing oil or profit oil.
Production sharing splits are set in each contract for the life of
the contract. Typically the government's share of production
sharing oil increases when production exceeds pre-set production
levels in the respective contracts. During times of increased oil
prices, the Company receives less cost oil and may receive more
production sharing oil. For reporting purposes, the Company records
the respective government's share of production as royalties and
taxes (all taxes are paid out of the Government's share of
production).
During the political change in Egypt, business processes and
operations have generally proceeded as normal. The Company
continues to expand its footprint in Egypt as evidenced by the
closing of recent business acquisitions. While exploration and
development activities have been uninterrupted for the most part,
the Company has experienced delays in the collection of accounts
receivable from the Egyptian Government due to the economic impact
caused by instability in the country. The Company is in continual
discussions with the Egyptian Government to determine solutions to
the delayed cash collections, and still expects to recover the
accounts receivable balance in full. Yemen is still unsettled,
however, the Company's production from Block S-1, which was shut-in
on October 8, 2011, was back on production as of July 27, 2012.
Production from Block S-1 averaged 965 Bopd to TransGlobe during
Q3-2012. The Company's historic crude marketing agreements for
Block S-1 production have changed. Post re-start of Block S-1 the
Company will now be paid on crude vessel liftings rather than on a
monthly basis. As a result, sales production will no longer equate
to physical production. Sales volumes versus production volumes
will vary during the quarters depending on the timing of tanker
liftings in the respective quarters.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest before Royalties (Bopd)
Production Volumes
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 16,853 11,138 16,622 10,419
Yemen 1,290 2,268 662 1,739
----------------------------------------------------------------------------
Total Company 18,143 13,406 17,284 12,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales Volumes
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 16,853 11,138 16,622 10,419
Yemen 271 2,268 320 1,739
----------------------------------------------------------------------------
Total Company 17,124 13,406 16,942 12,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback
Consolidated
Nine Months Ended September 30
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 460,128 99.12 339,875 102.40
Royalties 234,743 50.57 152,730 46.02
Current taxes 66,216 14.26 55,827 16.82
Production and operating expenses 35,024 7.54 26,404 7.96
----------------------------------------------------------------------------
Netback 124,145 26.75 104,914 31.60
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 152,623 96.88 128,265 104.00
Royalties 78,083 49.56 56,496 45.81
Current taxes 21,634 13.73 20,336 16.49
Production and operating expenses 11,622 7.38 9,762 7.92
----------------------------------------------------------------------------
Netback 41,284 26.21 41,671 33.78
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt
Nine Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 450,374 98.89 288,426 101.40
Royalties 230,649 50.64 129,665 45.59
Current taxes 64,890 14.25 49,350 17.35
Production and operating expenses 29,552 6.49 19,930 7.01
----------------------------------------------------------------------------
Netback 125,283 27.51 89,481 31.45
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 149,961 96.72 104,780 102.25
Royalties 77,032 49.68 47,044 45.91
Current taxes 21,318 13.75 17,783 17.35
Production and operating expenses 10,510 6.78 7,065 6.89
----------------------------------------------------------------------------
Netback 41,101 26.51 32,888 32.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The netback per Bbl in Egypt decreased 17% and 13% respectively,
in the three and nine months ended September 30, 2012 compared with
the same periods of 2011, mainly as a result of a 5% and 2%
decrease in the selling price on a per Bbl basis. The average
selling price during the three months ended September 30, 2012 was
$96.72/Bbl, which represents a gravity/quality adjustment of
approximately $12.89/Bbl to the average Dated Brent oil price for
the period of $109.61/Bbl.
Royalties and taxes as a percentage of revenue increased to 66%
in the three and nine months ended September 30, 2012, compared
with 62% in the same periods of 2011. This increase is due to the
fact that the three and nine month periods ended September 30, 2011
included only West Gharib production, whereas 2012 includes West
Gharib and West Bakr production. West Bakr production is subject to
higher Government takes according to the West Bakr Production
Sharing concession.
Operating expenses decreased slightly on a per Bbl basis for the
three and nine month periods ended September 30, 2012 compared with
the same period of 2011. This is due to the inclusion of West Bakr
in the 2012 figures. West Bakr has slightly lower operating costs
on a per Bbl basis than West Gharib, which is due mostly to lower
oil handling fees per Bbl along with the absence of trucking costs
in West Bakr.
Yemen
Nine Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 9,754 111.25 51,449 108.37
Royalties 4,094 46.69 23,065 48.58
Current taxes 1,326 15.12 6,477 13.64
Production and operating expenses 5,472 62.41 6,474 13.64
----------------------------------------------------------------------------
Netback (1,138) (12.97) 15,433 32.51
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 2,662 106.77 23,485 112.55
Royalties 1,051 42.15 9,452 45.30
Current taxes 316 12.67 2,553 12.24
Production and operating expenses 1,112 44.60 2,697 12.93
----------------------------------------------------------------------------
Netback 183 7.35 8,783 42.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Yemen, the Company experienced an 83% netback reduction on a
per Bbl basis in the three months ended September 30, 2012 compared
with the same period of 2011, and a negative netback of $12.97 per
Bbl in the nine months ended September 30, 2012. Operating expenses
on a per Bbl basis increased substantially (245% and 358%,
respectively) in the three and nine months ended September 30, 2012
compared to the same periods in 2011 as a result of production
being shut-in on Block S-1 from the beginning of the year until
July 27, 2012. While production volumes were down, the Company
continued to incur the majority of the operating costs on Block S-1
which significantly increased operating expenses per Bbl.
Royalties and taxes as a percentage of revenue were 51% and 56%,
respectively, in the three and nine months ended September 30,
2012, which is consistent with the comparative percentages of 51%
and 57%, respectively, from the same periods of 2011.
Production and operating expenses associated with the production
of unsold crude oil held in storage have been recorded as product
inventory and are therefore not included in the netback
calculations. The per Bbl figures in the netback calculations are
based on sales volumes.
Production from Block S-1 recommenced on July 27, 2012 after
having been shut-in following an attack on the oil export pipeline
on October 8, 2011. The Block S-1 operating expenses incurred
during the shut-in period are recoverable through cost oil on
future production.
DERIVATIVE COMMODITY CONTRACTS
TransGlobe uses hedging arrangements from time to time 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 is actively monitored and
adjusted as deemed necessary to protect the cash flows from the
risk of commodity price exposure.
As there are no outstanding derivative commodity contracts at
September 30, 2012, no assets or liabilities have been recognized
on the Condensed Consolidated Interim Balance Sheet for the current
period. As at September 30, 2012, no production is hedged in future
periods.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
Nine Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 18,993 4.09 13,138 3.94
Stock-based compensation 3,477 0.75 2,139 0.64
Capitalized G&A and overhead (1,641) (0.35) (1,686) (0.51)
recoveries
----------------------------------------------------------------------------
G&A (net) 20,829 4.49 13,591 4.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 6,112 3.88 4,588 3.72
Stock-based compensation 1,500 0.95 797 0.65
Capitalized G&A and overhead
recoveries (262) (0.17) (1,028) (0.83)
----------------------------------------------------------------------------
G&A (net) 7,350 4.66 4,357 3.54
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A expenses (net) increased 69% (32% on a per Bbl basis)
and 53% (10% on a per Bbl basis) in the three and nine months ended
September 30, 2012, compared with the same period in 2011. The
increase is principally due to increased staffing, administration
and insurance costs associated with West Bakr, along with increased
costs associated with recent acquisitions (South Alamein and South
Mariut).
The increase in stock-based compensation is due partly to an
increase in the total value of new options awarded during 2012 as
compared to those issued during 2011, combined with an increase in
the expense recorded on share appreciation rights in the nine
months of 2012 as a result of share price increases.
FINANCE COSTS
Finance costs for the three and nine months ended September 30,
2012 increased to $2.5 million and $11.5 million, respectively
(2011 - $1.3 million and $3.8 million, respectively). Finance costs
include interest on long-term debt and convertible debentures,
issue costs on convertible debentures and amortization of
transaction costs associated with long-term debt. The overall
increase in finance costs is due to higher debt levels combined
with the costs of issuing the convertible debentures.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
(000s) 2012 2011 2012 2011
----------------------------------------------------------------------------
Interest expense $ 2,144 $ 963 $ 5,905 $ 2,886
Issue costs for convertible
debentures - - 4,630 -
Amortization of deferred
financing costs 323 306 953 884
----------------------------------------------------------------------------
Finance costs $ 2,467 $ 1,269 $ 11,488 $ 3,770
----------------------------------------------------------------------------
The Company had $33.7 million of long-term debt outstanding at
September 30, 2012 (September 30, 2011 - $60.0 million). The
long-term debt that was outstanding at September 30, 2012 bore
interest at LIBOR plus an applicable margin that varies from 3.75%
to 4.75% depending on the amount drawn under the facility.
In February 2012, the Company sold, on a bought-deal basis,
C$97.8 million ($97.9 million) aggregate principal amount of
convertible unsecured subordinated debentures with a maturity date
of March 31, 2017. Transaction costs of $4.6 million relating to
the issuance of the convertible debentures were expensed in the
nine months ended September 30, 2012. The debentures are
convertible at any time and from time to time into common shares of
the Company at a price of C$15.10 per common share. The debentures
are not redeemable by the Company on or before March 31, 2015 other
than in limited circumstances in connection with a change of
control of TransGlobe. After March 31, 2015 and prior to March 31,
2017, the debentures may be redeemed by the Company at a redemption
price equal to the principal amount plus accrued and unpaid
interest, provided that the weighted-average trading price of the
common shares for the 20 consecutive trading days ending five
trading days prior to the date on which notice of redemption is
provided is not less than 125 percent of the conversion price (or
C$18.88). Interest of 6% is payable semi-annually in arrears on
March 31 and September 30. The first semi-annual interest payment
was made on September 30, 2012 which included 39 days prior to
March 31, 2012. At maturity or redemption, the Company has the
option to settle all or any portion of principal obligations by
delivering to the debenture holders sufficient common shares to
satisfy these obligations.
DEPLETION AND DEPRECIATION ("DD&A")
Nine Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 33,570 7.37 22,746 8.00
Yemen 645 7.36 3,166 6.67
Corporate 301 - 351 -
----------------------------------------------------------------------------
34,516 7.44 26,263 7.91
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 10,706 6.90 8,781 8.57
Yemen 196 7.86 1,408 6.75
Corporate 103 - 111 -
----------------------------------------------------------------------------
11,005 6.99 10,300 8.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, DD&A decreased 19% and 8%, respectively, on a per
Bbl basis for the three and nine month periods ended September 30,
2012. These decreases are mostly due to proved plus probable
reserve additions during the third quarter of 2012.
In Yemen, DD&A increased 16% and 10%, respectively, on a per
Bbl basis for the three and nine month periods ended September 30,
2012. These increases are mostly due to a smaller reserve base over
which capital costs are being depleted compared to 2011.
CAPITAL EXPENDITURES
Nine Months Ended
September 30
----------------------------------------------------------------------------
($000s) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 30,368 52,570
Yemen 1,003 5,557
Acquisitions 27,978 -
Corporate 130 1,417
----------------------------------------------------------------------------
Total 59,479 59,544
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, total capital expenditures in the first nine months of
2012 were $30.4 million (2011 - $52.6 million). The Company drilled
20 wells at West Gharib (thirteen at Arta and seven at East Arta)
during the first nine months of the year. During the second and
third quarters of 2012 the Company drilled five wells at West Bakr
and two wells at East Ghazalat. Production is currently restricted
at West Gharib due to volume constraints at the processing
facility. As a result, the capital cost per well drilled in West
Gharib has decreased as the Company has chosen not to proceed with
the completion and equipping of those new wells, which will require
fracture stimulations, until the fourth quarter of 2012 or during
2013. Furthermore, movable equipment is being redeployed from
shut-in wells to producing wells.
On July 26, 2012, the Company completed a Share Purchase
Agreement to acquire 100% of the common shares of Cepsa Egypt SA
B.V. ("Cepsa Egypt"), a wholly-owned subsidiary of Compania
Espanola De Petroleos, S.A.U. ("Cepsa"), a company registered in
Spain. Cepsa Egypt holds an operated 50% working interest in the
South Alamein PSC in Egypt. As a result, the Company now holds a
100% working interest in the South Alamein concession through two
wholly-owned subsidiaries. The Cepsa transaction was structured as
an all-cash deal, effective July 1, 2012, funded through working
capital. Total consideration for the transaction was $4.9 million,
which represents a $3.0 million base purchase price plus $1.9
million in consumable drilling inventory (which is classified as
exploration and evaluation assets), working capital and other
closing adjustments.
On June 7, 2012, the Company completed a Share Purchase
Agreement to acquire 100% of the common shares of a wholly-owned
subsidiary of EP Energy LLC which holds, through wholly-owned
subsidiaries, a non-operated 50% interest in the South Alamein PSC
in Egypt and an operated 60% working interest in the South Mariut
PSC in Egypt. The transaction was structured as an all-cash deal,
effective April 1, 2012, funded through working capital and the
proceeds of the issuance of convertible debentures. Total
consideration for the transaction was $23.3 million, which
represents a $15.0 million base purchase price plus $8.3 million in
working capital and other closing adjustments.
OUTSTANDING SHARE DATA
As at September 30, 2012, the Company had 73,758,638 common
shares issued and outstanding.
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 operations
(calculated on a 12-month trailing basis). TransGlobe's
debt-to-funds flow from operations ratio, a key short-term leverage
measure, remained strong at 1.0 times at September 30, 2012. This
is 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 September 30, 2012 and 2011:
Sources and Uses of Cash
Nine Months Ended
September 30
----------------------------------------------------------------------------
($000s) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
Funds flow from operations(i) 106,659 93,507
Transfer from restricted cash 806 1,161
Issue of convertible debentures 97,851 -
Exercise of stock options 3,196 1,828
Issuance of common shares, net of share issuance
costs - 71,583
Other 814 772
----------------------------------------------------------------------------
----------------------------------------------------------------------------
209,326 168,851
Cash used
Capital expenditures 31,501 59,544
Deferred financing costs 383 -
Acquisitions 27,978 -
Repayment of long-term debt 26,300 30,000
Finance costs 10,203 2,453
Other 435 463
----------------------------------------------------------------------------
----------------------------------------------------------------------------
96,800 92,460
----------------------------------------------------------------------------
----------------------------------------------------------------------------
112,526 76,391
Changes in non-cash working capital (110,678) (29,166)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase in cash and cash equivalents 1,848 47,225
Cash and cash equivalents - beginning of period 43,884 57,782
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 45,732 105,007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Funds flow from operations is a 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 2012
exploration and development program of $52.0 million ($20.5 million
remaining) and contractual commitments through the use of working
capital and cash generated by operating activities. 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 September 30, 2012, the Company had working
capital of $252.2 million (December 31, 2011 - $140.0 million). The
increase to working capital in 2012 is principally a result of an
increase in accounts receivable between December 31, 2011 and
September 30, 2012, combined with a decrease in accounts payable
during the same period. The majority of the Company's accounts
receivable are due from Egyptian General Petroleum Company
("EGPC"), and the recent political changes in the country have
increased the Company's credit risk. The Company is in continual
discussions with EGPC and the Egyptian Government to determine
solutions to the delayed cash collections, and still expects to
recover the entire accounts receivable balance in full. Subsequent
to the end of the third quarter, the Company received notification
that it will collect $52.5 million in late November via an exported
shipment of crude oil designated for TransGlobe.
In February 2012, the Company sold, on a bought-deal basis,
C$97.8 million ($97.9 million) aggregate principal amount of
convertible unsecured subordinated debentures with a maturity date
of March 31, 2017. Transaction costs of $4.6 million relating to
the issuance of the convertible debentures were expensed in the
nine months ended September 30, 2012. The debentures are
convertible at any time and from time to time into common shares of
the Company at a price of C$15.10 per common share. The debentures
are not redeemable by the Company on or before March 31, 2015 other
than in limited circumstances in connection with a change of
control of TransGlobe. After March 31, 2015 and prior to March 31,
2017, the debentures may be redeemed by the Company at a redemption
price equal to the principal amount plus accrued and unpaid
interest, provided that the weighted-average trading price of the
common shares for the 20 consecutive trading days ending five
trading days prior to the date on which notice of redemption is
provided is not less than 125 percent of the conversion price (or
C$18.88). Interest of 6% is payable semi-annually in arrears on
March 31 and September 30. The first semi-annual interest payment
was made on September 30, 2012 which includes 39 days prior to
March 31, 2012. At maturity or redemption, the Company has the
option to settle all or any portion of principal obligations by
delivering to the debenture holders sufficient common shares to
satisfy these obligations.
At September 30, 2012, TransGlobe had $85.5 million available
under a Borrowing Base Facility of which $33.7 million was drawn.
As repayments on the Borrowing Base Facility are not expected to
commence until 2014, the entire balance is presented as a long-term
liability on the Condensed Consolidated Interim Balance Sheets.
Repayments will be made as required according to the scheduled
reduction of the facility.
September 30, December 31,
($000s) 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bank debt 33,700 60,000
Deferred financing costs (1,822) (2,391)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt (net of deferred financing
costs) 31,878 57,609
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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)
----------------------------------------------------------------------------
Recognized
in Less
Financial Contractual than 1 1-3 4-5 More than
Statements Cash Flows year years years 5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and Yes-
accrued liabilities Liability 47,603 47,603 - - -
Long-term debt Yes-
Liability 33,700 - 33,700 - -
Convertible Yes-
debentures Liability 102,920 - - 102,920 -
Office and equipment
leases No 13,019 4,936 2,438 2,094 3,551
Minimum work
commitments(3) No 750 750 - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total 197,992 53,289 36,138 105,014 3,551
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Payments exclude ongoing operating costs, finance costs and payments made to
settle derivatives.
Payments denominated in foreign currencies have been translated at September
30, 2012 exchange rates.
Minimum work commitments include contracts awarded for capital projects and
those commitments related to exploration and drilling obligations.
Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint
Interest Partners) has a remaining minimum financial commitment of
$3.0 million ($0.8 million to TransGlobe) for one exploration well
in the first exploration period, which has been extended to March
9, 2013.
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 $2.0 million if incremental
reserve thresholds are reached in the South Rahmi development lease
to be evaluated annually. Based on the Company's annual Reserve
Report effective December 31, 2011, no additional fees are due in
2012.
Pursuant to the June 7, 2012 share purchase agreement for a 60%
operated interest in the South Mariut concession in Egypt, the
Contractor (Joint Interest Partners) has a minimum financial
commitment of $9.0 million ($5.4 million to TransGlobe) for three
exploration wells ($3.0 million each) which were commitments from
the original exploration period and were carried into the first
three-year extension period, which expires on April 5, 2013. The
Company issued three $3.0 million letters of credit to guarantee
performance under this extension period and has commenced drilling
the first of three planned wells. To date all financial commitments
have been met. There is a further two-year extension available
under the terms of the PSC.
Pursuant to the June 7, 2012 and July 26, 2012 share purchase
agreements for a combined 100% operated interest in the South
Alamein concession in Egypt, the Company has a commitment to drill
one well (all financial commitments have been met) prior to the
termination of the final two-year extension period, which expires
on April 5, 2014.
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.
The Company is not aware of any material provisions or other
contingent liabilities as at September 30, 2012.
EVENTS AFTER THE REPORTING PERIOD
On November 6, 2012, the Company received notification that it
was the successful bidder on four concessions in the 2011/2012 EGPC
bid round in Egypt. The new concessions will be awarded following
the ratification process which culminates when each concession is
passed into law by the Egyptian People's Assembly (Parliament). All
four concessions have a seven year exploration term which will
commence when the respective concessions are passed into law. The
seven year term is comprised of three phases starting with an
initial three year exploration period and two additional two year
extension periods. The Company committed to spending $101 million
in the first exploration period (3 years) including signature
bonuses, the acquisition of new 2D and 3D seismic, and an extensive
drilling program approaching 40 wells.
MANAGEMENT STRATEGY AND OUTLOOK FOR 2012
The 2012 outlook provides information as to management's
expectation for results of operations for 2012. Readers are
cautioned that the 2012 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.
2012 Outlook Highlights
-- Production is expected to average 17,500 Bopd, a 44% increase over the
2011 average production;
-- Exploration and development spending is expected to be $52.0 million
excluding acquisitions; and
-- Funds flow from operations is estimated at $147 million, an increase of
23% over 2011, using an oil price assumption of $100.00 per barrel Dated
Brent oil price for the remaining quarter of 2012.
2012 Production Outlook
Production Forecast
2012
Guidance(i) 2011 Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil per day 17,500 12,132 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Production is estimated to average approximately 17,500 for
2012, assuming no additional production disruptions in Yemen and
Egypt
2012 Updated Funds Flow From Operations Outlook
Funds flow from operations is estimated at $147.0 million
($1.96/share) based on an average Dated Brent oil price of $100/Bbl
for the remainder of the year. Variations in production and
commodity prices during the remainder of 2012 could significantly
change this outlook. An increase or decrease in the average Dated
Brent oil price of $10/Bbl for the remainder of the year would
result in a corresponding change in anticipated 2012 funds flow by
approximately $3.8 million or $0.05/share.
Funds Flow Forecast
($ millions)
2012 Updated
Guidance 2011 Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations 147.0 120.0 23
Dated Brent oil price ($ per
Bbl) (i) 109.05 111.27 (2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Dated Brent oil price for 2012 Updated Guidance includes an
estimated price of $100/Bbl for Q4-2012.
Revised 2012 Capital Budget
($ millions)
Nine Months
Ended
September 30, 2012 Amended 2012
2012 Guidance Annual Budget
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 30.4 50.3 72.7
Yemen 1.0 1.5 5.4
Corporate 0.1 0.2 0.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total 31.5 52.0 78.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The 2012 capital spending, excluding acquisitions, is now
expected to be approximately $52.0 million, a decrease of
approximately $26 million from the amended budget. The capital
spending will be lower, primarily due to delays in the acquisition
approvals and subsequent operations.
The Company plans to participate in 35 wells in 2012. It is
anticipated that the Company will fund its 2012 capital budget from
funds flow from operations and working capital.
2013 Guidance
The Company is planning to provide 2013 guidance for production,
funds flow and capital by mid-December 2012.
CHANGES IN ACCOUNTING POLICIES
New accounting policies
IFRS 7 (revised) "Financial Instruments: Disclosures"
In October 2010, the International Accounting Standards Board
("IASB") issued amendments to IFRS 7 to provide additional
disclosure on the transfer of financial assets including the
possible effects of any residual risks that the transferring entity
retains. These amendments are effective for annual periods
beginning after July 1, 2011. In December 2011, the IASB issued
further amendments to IFRS 7 to provide additional disclosures
about offsetting financial assets and financial liabilities on the
entity's balance sheet when permitted. These amendments are
effective for annual periods beginning on or after January 1, 2013.
The Company has adopted these amendments for the year ending
December 31, 2012. These amendments had no material impact to the
Condensed Consolidated Interim Financial Statements.
IAS 12 (revised) "Income Taxes"
In December 2010, the IASB issued amendments to IAS 12 to remove
subjectivity in determining on which basis an entity measures the
deferred tax relating to an asset. The amendments introduce a
presumption that entities will assess whether the carrying value of
an asset will be recovered through the sale of the asset. These
amendments are effective for annual periods beginning on or after
January 1, 2012; therefore, the Company has adopted them for the
year ending December 31, 2012. These amendments had no material
impact to the Condensed Consolidated Interim Financial
Statements.
Future changes to accounting policies
The following standards and interpretations have not been
adopted as they apply to future periods. They may result in changes
to the Company's existing accounting policies and other note
disclosures:
IFRS 9 (revised) "Financial Instruments: Classification and
Measurement"
In November 2009, the IASB issued IFRS 9 as part of its project
to replace IAS 39, "Financial Instruments: Recognition and
Measurement". In October 2010, the IASB updated IFRS 9 to include
the requirements for financial liabilities. IFRS 9 replaces the
multiple rules in IAS 39 with a single approach to determine
whether a financial asset is measured at amortized cost or fair
value. The approach in IFRS 9 is based on how an entity manages its
financial instruments in the context of its business model and the
contractual cash flow characteristics of the financial assets. IFRS
9 is effective for annual periods beginning on or after January 1,
2015. The Company is currently evaluating the impact of this
standard on its Consolidated Financial Statements.
IFRS 10 (new) "Consolidated Financial Statements"
In May 2011, the IASB issued IFRS 10 to replace SIC-12,
"Consolidation - Special Purpose Entities", and parts of IAS 27,
"Consolidated and Separate Financial Statements". IFRS 10
establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or
more other entities. IFRS 10 is effective for annual periods
beginning on or after January 1, 2013. The Company does not expect
the impact of this standard on its Consolidated Financial
Statements to be material.
IFRS 11 (new) "Joint Arrangements"
In May 2011, the IASB issued IFRS 11 to replace IAS 31,
"Interests in Joint Ventures", and SIC-13, "Jointly Controlled
Entities - Non-monetary Contributions by Venturers". IFRS 11
requires entities to follow the substance rather than legal form of
a joint arrangement and removes the choice of accounting method.
IFRS 11 is effective for annual periods beginning on or after
January 1, 2013. The Company does not expect the impact of this
standard on its Consolidated Financial Statements to be
material.
IFRS 12 (new) "Disclosure of Interests in Other Entities"
In May 2011, the IASB issued IFRS 12, which aggregates and
amends disclosure requirements included within other standards.
IFRS 12 requires entities to provide disclosures about
subsidiaries, joint arrangements, associates and unconsolidated
structured entities. IFRS 12 is effective for annual periods
beginning on or after January 1, 2013. The Company does not expect
the impact of this standard on its Consolidated Financial
Statements to be material.
IFRS 13 (new) "Fair Value Measurement"
In May 2011, the IASB issued IFRS 13 to clarify the definition
of fair value and provide guidance on determining fair value. IFRS
13 amends disclosure requirements included within other standards
and establishes a single framework for fair value measurement and
disclosure. IFRS 13 is effective for annual periods beginning on or
after January 1, 2013. The Company does not expect the impact of
this standard on its Consolidated Financial Statements to be
material.
IAS 1 (revised) "Presentation of Financial Statements"
In June 2011, the IASB issued amendments to IAS 1 to require
separate presentation for items of other comprehensive income that
would be reclassified to profit or loss in the future from those
that would not. These amendments are effective for annual periods
beginning on or after July 1, 2012. The Company does not expect the
impact of this standard on its Consolidated Financial Statements to
be material.
IAS 19 (revised) "Employee Benefits"
In June 2011, the IASB issued amendments to IAS 19 to revise
certain aspects of the accounting for pension plans and other
benefits. The amendments eliminate the corridor method of
accounting for defined benefit plans, change the recognition
pattern of gains and losses, and require additional disclosures.
These amendments are effective for annual periods beginning on or
after January 1, 2013. The Company does not expect the impact of
this standard on its Consolidated Financial Statements to be
material.
IAS 28 (revised) "Investments in Associates and Joint
Ventures"
In May 2011, the IASB issued amendments to IAS 28 to prescribe
the accounting for investments in associates and set out the
requirements for applying the equity method when accounting for
investments in associates and joint ventures. These amendments are
effective for annual periods beginning on or after January 1, 2013.
The Company does not expect the impact of this standard on its
Consolidated Financial Statements to be material.
IAS 32 (revised) "Financial Instruments: Presentation"
In December 2011, the IASB issued amendments to IAS 32 to
address inconsistencies when applying the offsetting criteria.
These amendments clarify some of the criteria required to be met in
order to permit the offsetting of financial assets and financial
liabilities. These amendments are effective for annual periods
beginning on or after January 1, 2014. The Company is currently
evaluating the impact of these amendments to its Consolidated
Financial Statements.
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 IFRS, 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.
No changes were made to the Company's internal control over
financial reporting during the period ended September 30, 2012 that
have materially affected, or are reasonably likely to materially
affect, the internal controls over financial reporting.
Condensed Consolidated Interim Statements of Earnings and Comprehensive
Income
(Unaudited - Expressed in thousands of U.S. Dollars, except per share
amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
Oil sales, net of royalties $ 74,540 $ 71,769 $ 225,385 $ 187,145
Derivative gain (loss) on
commodity contracts - (13) (125) (599)
Finance revenue 100 148 351 343
----------------------------------------------------------------------------
74,640 71,904 225,611 186,889
----------------------------------------------------------------------------
EXPENSES
Production and operating 11,622 9,762 35,024 26,404
General and administrative 7,350 4,357 20,829 13,591
Foreign exchange (gain) loss 3,190 265 1,016 345
Finance costs 2,467 1,269 11,488 3,770
Exploration 129 331 800 353
Depletion, depreciation and
amortization 11,005 10,300 34,516 26,263
Unrealized (gain) loss on
financial instruments 4,361 - 3,363 -
Impairment of exploration and
evaluation assets - 68 17 12,144
----------------------------------------------------------------------------
40,124 26,352 107,053 82,870
----------------------------------------------------------------------------
Earnings before income taxes 34,516 45,552 118,558 104,019
Income tax expense (recovery) -
current 21,634 20,336 66,216 55,827
- deferred 1,108 (894) (556) (2,681)
----------------------------------------------------------------------------
22,742 19,442 65,660 53,146
----------------------------------------------------------------------------
NET EARNINGS AND COMPREHENSIVE
INCOME FORTHE PERIOD $ 11,774 $ 26,110 $ 52,898 $ 50,873
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
Basic $ 0.16 $ 0.36 $ 0.72 $ 0.70
Diluted $ 0.16 $ 0.35 $ 0.70 $ 0.68
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
As at As at
September 30 December 31
2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 45,732 $ 43,884
Accounts receivable 243,483 162,225
Derivative commodity contracts - 125
Prepaids and other 8,347 7,441
Product inventory 2,283 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
299,845 213,675
Non-Current
Restricted cash 1,420 2,226
Intangible exploration and evaluation
assets 46,084 17,453
Property and equipment
Petroleum properties 274,955 280,524
Other assets 5,045 3,748
Goodwill 8,180 8,180
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 635,529 $ 525,806
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 47,603 $ 73,692
----------------------------------------------------------------------------
47,603 73,692
Non-Current
Long-term debt 31,878 57,609
Convertible debentures 102,920 -
Deferred taxes 52,335 52,891
Other long-term liabilities 1,029 1,122
----------------------------------------------------------------------------
----------------------------------------------------------------------------
235,765 185,314
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 158,539 154,263
Contributed surplus 10,636 8,538
Retained earnings 230,589 177,691
----------------------------------------------------------------------------
----------------------------------------------------------------------------
399,764 340,492
----------------------------------------------------------------------------
----------------------------------------------------------------------------
$ 635,529 $ 525,806
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share Capital
Balance, beginning of
period $ 156,320 $ 153,815 $ 154,263 $ 80,106
Stock options exercised 1,674 215 3,196 1,828
Share issuance - - - 75,594
Share issue costs - - - (4,011)
Transfer to share capital
on exercise of options 545 74 1,080 587
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of period $ 158,539 $ 154,104 $ 158,539 $ 154,104
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contributed Surplus
Balance, beginning of
period $ 9,844 $ 6,673 $ 8,538 $ 5,785
Stock-based compensation
expense 1,337 982 3,178 2,383
Transfer to share capital
on exercise of options (545) (74) (1,080) (587)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of period $ 10,636 $ 7,581 $ 10,636 $ 7,581
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained Earnings
Balance, beginning of
period $ 218,815 $ 121,062 $ 177,691 $ 96,299
Net earnings 11,774 26,110 52,898 50,873
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, end of period $ 230,589 $ 147,172 $ 230,589 $ 147,172
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING
ACTIVITIES:
OPERATING
Net earnings for the
period $ 11,774 $ 26,110 $ 52,898 $ 50,873
Adjustments for:
Depletion, depreciation
and amortization 11,005 10,300 34,516 26,263
Deferred lease
inducement 113 119 342 238
Impairment of
exploration and
evaluation costs - 68 17 12,144
Stock-based compensation 1,500 738 3,477 2,139
Finance costs 2,467 1,269 11,488 3,770
Income tax expense 22,742 19,442 65,660 53,146
Unrealized (gain) loss
on commodity contracts - 13 125 235
Unrealized (gain) loss
on financial
instruments 4,361 - 3,363 -
Unrealized (gain) loss
on foreign currency
translation 3,069 257 989 526
Income taxes paid (21,634) (20,336) (66,216) (55,827)
Changes in non-cash
working capital (33,029) (34,524) (77,917) (32,207)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net cash generated by (used
in) operating activities 2,368 3,456 28,742 61,300
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INVESTING
Additions to intangible
exploration and
evaluation assets (189) (862) (1,710) (6,699)
Additions to petroleum
properties (11,854) (19,296) (28,626) (50,981)
Additions to other assets (536) (2) (1,165) (1,864)
Business acquisitions (4,881) - (27,978) -
Changes in restricted cash (1) (3) 806 1,161
Changes in non-cash
working capital (765) (651) (32,850) 2,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net cash generated by (used
in) investing activities (18,226) (20,814) (91,523) (55,670)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCING
Issue of common shares for
cash 1,674 215 3,196 77,422
Issue costs for common
shares - - - (4,011)
Financing costs - - (383) -
Interest paid (4,180) (530) (5,573) (2,453)
Issue of convertible
debentures - - 97,851 -
Issue costs for
convertible debentures - - (4,630) -
Repayments of long-term
debt (6,300) - (26,300) (30,000)
Decrease in other long-
term liabilities (106) - (435) 772
Changes in non-cash
working capital (2,374) 432 89 328
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net cash generated by (used
in) financing activities (11,286) 117 63,815 42,058
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Currency translation
differences relating to
cash and cash equivalents 646 (411) 814 (463)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (26,498) (17,652) 1,848 47,225
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 72,230 122,659 43,884 57,782
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 45,732 $ 105,007 $ 45,732 $ 105,007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 Scott Koyich Investor
Relations 403.264.9888investor.relations@trans-globe.com
www.trans-globe.com
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