TransGlobe Energy Corporation (TSX:TGL) (NASDAQ:TGA) ("TransGlobe"
or the "Company") is pleased to announce its financial and
operating results for the three and six months ended June 30, 2013.
All dollar values are expressed in United States dollars unless
otherwise stated.
-- Second quarter production averaged 18,417 Bopd (18,539 Bopd sales);
-- Second quarter funds flow of $32.9 million;
-- Second quarter earnings of $10.4 million (includes a $19.7 million
impairment loss at South Mariut and a $9.1 million gain on convertible
debentures);
-- Spent $19.3 million on exploration and development during the quarter;
-- Drilled 14 wells in the quarter resulting in 12 oil wells and 2 dry
holes;
-- Drilled 5 wells subsequent to the quarter resulting in 4 oil wells and 1
gas/condensate well;
-- Two new oil pool discoveries in West Bakr;
-- Collected $31.7 million in accounts receivable from the Egyptian
Government during the quarter;
-- Ended the quarter with $101.4 million in cash and cash equivalents;
positive working capital of $286.8 million or $189.8 million net of debt
(including convertible debentures);
-- Amended the Borrowing Base Facility to re-establish the borrowing base
at $100 million and to extend the term of the facility to December 31,
2017.
A conference call to discuss TransGlobe's 2013 second quarter
results presented in this news release will be held Monday, August
12, 2013 at 9:00 AM Mountain Time (11:00 AM Eastern Time) and is
accessible to all interested parties by dialing 1-416-695-6616 or
toll-free 1-800-766-6630 (see also TransGlobe's news release dated
August 6, 2013). The webcast may be accessed at
http://www.gowebcasting.com/4458.
FINANCIAL AND OPERATING RESULTS
(US$000s, except per share, price, volume amounts and %
change)
Three months ended June 30 Six months ended June 30
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Financial 2013 2012 % Change 2013 2012 % Change
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Oil revenue 152,646 148,078 3 312,561 307,504 2
Oil revenue, net
of royalties 76,223 73,633 4 155,589 150,845 3
Derivative gain
(loss) on
commodity
contracts - (1) 100 - (125) 100
Production and
operating
expense 17,529 11,436 53 32,061 23,402 37
General and
administrative
expense 6,319 6,791 (7) 13,419 13,479 -
Depletion,
depreciation and
amortization
expense 12,060 11,762 3 23,240 23,511 (1)
Income taxes 19,416 21,333 (9) 43,337 42,918 1
Funds flow from
operations(i) 32,887 35,174 (7) 68,892 71,262 (3)
Basic per share 0.45 0.48 0.94 0.97
Diluted per
share 0.40 0.43 0.84 0.89
Net earnings 10,397 30,149 (66) 35,275 41,124 (14)
Net earnings
(loss) - diluted (183) 20,821 - 21,244 40,408 (47)
Basic per share 0.14 0.41 0.48 0.56
Diluted per
share - 0.25 0.26 0.50
Capital
expenditures 19,295 14,450 34 37,488 18,922 98
Corporate
acquisition - 23,097 (100) - 23,097 (100)
Working capital 286,805 240,236 19 286,805 240,236 19
Long-term debt,
including
current portion 15,224 37,855 (60) 15,224 37,855 (60)
Convertible
debentures 81,830 95,043 (14) 81,830 95,043 (14)
Common shares
outstanding
Basic (weighted-
average) 73,884 73,235 1 73,845 73,148 1
Diluted
(weighted-
average) 82,345 82,056 - 82,094 80,096 2
Total assets 670,996 620,937 8 670,996 620,937 8
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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.
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Operating
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Average production volumes
(Bopd) 18,417 16,941 9 18,209 16,868 8
Average sales volumes
(Bopd) 18,539 16,978 9 18,225 16,850 8
Average price ($ per Bbl) 90.48 95.84 (6) 94.75 100.27 (6)
Operating expense ($ per
Bbl) 10.39 7.40 40 9.72 7.63 27
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CORPORATE SUMMARY
TransGlobe Energy Corporation's ("TransGlobe" or the "Company")
total production averaged 18,417 barrels of oil per day ("Bopd")
during the second quarter which is up slightly from the previous
quarter production of 18,001 Bopd.
In the Eastern Desert the Company continues to grow production
primarily due to successful drilling and facility
expansion/optimization projects. Year-to-date the Company has
drilled 22 wells in the Eastern Desert resulting in 21 oil wells
and 1 dry hole. At West Bakr the Company has new oil discoveries in
West Bakr H and M fields which will lead to additional drilling in
the future. At West Gharib the Company finalized a well stimulation
contract in June and has embarked on a completion/stimulation
program to complete and stimulate 15 wells that were waiting on
stimulation in addition to new wells being drilled in 2013.
In the Western Desert the Company participated in four wells at
East Ghazalat which resulted in two small development oil wells, a
gas/condensate discovery and an exploration dry hole. At South
Alamein the Company received military access approval for two
exploration wells in June, which are expected to commence drilling
in Q4-2013. At South Mariut, the Company met its three well
obligation and relinquished the concession.
Dated Brent oil prices were lower in the second quarter,
averaging $102.44 per barrel, down 9% from $112.59 per barrel in
Q1-2013. The West Gharib and West Bakr crude is sold at a quality
discount to Dated Brent and received a blended price of $90.48
during the quarter. The Company had funds flow of $32.9 million and
ended the quarter with positive working capital of $286.8 million
or $189.8 million net of debt (including the convertible
debentures). The Company collected $31.7 million of accounts
receivable from the Egyptian government during the quarter which
resulted in an increased accounts receivable (net of excess cost
oil due to Egyptian General Petroleum Company ("EGPC")) to $222.3
million (Q1-2013 - $204.6 million) at the end of the quarter. The
Company is currently in the process of finalizing a schedule of
payments to be received from EGPC for the remainder of 2013. The
total payments from EGPC in 2013 are expected to be in the range of
$220 million to $250 million which includes an additional one and a
half cargo liftings in the second half of this year worth an
estimated $70 million to $75 million depending on the prevailing
oil prices at the time of lifting. A typical full cargo lifting is
approximately 510,000 barrels of oil.
The Company expanded and extended its $100,000,000 borrowing
base facility on June 24, 2013. The syndicate consists of Sumitomo
Mitsui Banking Corporation (agent and technical bank), Export
Development Canada and International Finance Corporation each with
a 33.33% commitment. The commitment is a 4.5 year term with stepped
reductions.
The Company had net earnings in the quarter of $10.4 million,
which includes a $19.7 million impairment on the relinquished South
Mariut concession and a $9.1 million non-cash unrealized gain on
convertible debentures. The $9.1 million gain represents a fair
value adjustment in accordance with IFRS, but does not represent a
cash gain or a change in the future cash outlay required to repay
the convertible debentures.
In late June and early July, the government led by Mohamed Morsi
was removed and a new interim government was installed following
massive protests at the end of June. During this period of
extraordinary political change, the Company's field operations and
offices were not directly impacted. The Company continues to grow
in Egypt but at a slower rate than originally planned for 2013 due
to delayed approval processes and overall macro-economic pressures
in Egypt which have impacted our ability to spend the capital
originally budgeted for Egypt. We expect that disruptions to normal
business and supply processes will continue in the medium term as
Egypt works through its current macro-economic challenges. This has
and will continue to impact our ability to execute our programs
with the same predictability that we have historically experienced
in Egypt.
The Company has a strong financial position and continues to
pursue business development opportunities both within and outside
of Egypt.
OPERATIONS UPDATE
ARAB REPUBLIC OF EGYPT
West Gharib, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
The Company drilled five wells in the second quarter resulting
in five oil wells (four at Arta/East Arta and one at Hana).
Subsequent to the quarter two oil wells were drilled at East
Arta.
The Q2 East Arta well successfully appraised a Lower Nukhul pool
on the north west edge of the East Arta block which had been
discovered prior to the 2012 EGPC bid round. The new East Arta well
encountered a Lower Nukhul reservoir with 90 feet of net pay. The
well has been perforated, stimulated and recently placed on
production at an initial rate of 180 Bopd. The original discovery
well initially produced 550 Bopd and is currently producing 470
Bopd after 22 months of production. Based on 3-D seismic mapping
the majority of the Lower Nukhul pool appears to extend on to the
NW Gharib block. The pool is estimated to contain between 10 and 40
million barrels of Petroleum-Initially-In-Place ("PIIP") (P90 to
P10 respectively) based on internal estimates. Approximately 22
additional locations on 40-acre spacing will be required to define
the extent of this Lower Nukhul pool.
Two of the Arta wells were drilled west of the main Arta field
to appraise a new Upper Nukhul oil discovery drilled in the third
quarter 2012. The Arta west discovery well also encountered a new
Lower Nukhul sand which was wet. The two appraisal wells
encountered Upper Nukhul oil and one of the wells encountered a
Lower Nukhul oil reservoir with 18 feet of net pay. The Lower
Nukhul pool is estimated to contain between 2 and 10 million
barrels of PIIP (P90 to P10 respectively) based on internal
estimates. Approximately 10 appraisal locations will be required to
define the pool which potentially extends on to the NW Gharib
block. The Arta west discovery well was completed (unstimulated) in
the Upper Nukhul and is producing approximately 35 Bopd after 8
months of production. Appraisal wells (Upper and Lower Nukhul) are
being completed and are scheduled for stimulation this quarter.
A development oil well was also drilled in the southern portion
of the main Arta pool and another in the Hana pool. Both wells are
scheduled for completion in the third quarter.
Subsequent to the quarter an Upper Nukhul oil well was drilled
in the south eastern portion of the East Arta block to appraise a
new pool drilled in Q3 of 2012 and a Thebes formation oil well was
drilled to appraise the Thebes discovery drilled in the north east
corner of East Arta in Q3 of 2012.
Year to date the Company has drilled 12 wells resulting in 11
oil wells and one dry hole at West Gharib. The rig is currently
drilling a second appraisal well in the Lower Nukhul pool on the
north west edge of East Arta.
Production
Production from West Gharib averaged 12,829 Bopd to TransGlobe
during the second quarter, a 1% (141 Bopd) decrease from the
previous quarter.
Production averaged 13,798 Bopd in April, 12,359 Bopd in May,
12,346 Bopd in June and 12,024 Bopd in July.
Production was lower in May, June and July due to a combination
of unscheduled pump changes, several unrelated labor disputes which
restricted our ability to truck oil to the GPC truck terminal and
natural declines in production which were not offset by new wells
as planned due to a prolonged contract approval process for well
stimulations. A new well stimulation contract was approved in
mid-June and the equipment was mobilized to the field in late June.
Seven wells were stimulated in late June/July and placed on
production during July. The company currently has an additional 12
cased wells scheduled for stimulation this year in addition to the
planned drilling for the balance of the year, where is expected to
restore production to the 13,000 to 14,000 Bopd level in Q3/Q4.
The truck receiving terminal constructed at West Bakr K station
(year end 2012) allowed the company to produce West Gharib at
reduced rates during several unrelated labor disputes which
restricted trucking to the GPC truck terminal during May and June.
The Company continues to progress a number of infrastructure
projects in the West Gharib/West Bakr fields designed to ultimately
deliver all West Gharib production to GPC by pipeline and eliminate
oil trucking outside the West Gharib field area.
Quarterly West Gharib Production (Bopd)
2013 2012
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Q-2 Q-1 Q-4 Q-3
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Gross production rate 12,829 12,970 11,563 12,182
TransGlobe working interest 12,829 12,970 11,563 12,182
TransGlobe net (after royalties) 7,066 7,084 6,697 6,757
TransGlobe net (after royalties and tax)(i) 4,995 4,916 4,884 4,741
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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 has drilled four wells in the second quarter
resulting in four oil wells (two oil wells in the H field, one oil
well in the M field and one oil well in the K field). Subsequent to
the quarter, one oil well was drilled in H field and one oil well
in M field.
The company drilled one development oil well in the H field
which was placed on production at approximately 200 Bopd and one
exploration well (H East 1X) which resulted in a new pool discovery
East of H field. The H East 1X well has averaged approximately 350
Bopd during the first 20 days of production. Based on initial
results, the company is planning to add several appraisal wells to
the 2013/14 drilling program.
In K field the Company drilled a vertical development well in
the main Asl A pool which encountered 148 feet of net Asl A oil pay
based on logs. The well was initially completed and placed on
production at approximately 100 Bopd but encountered a rapid
increase in water production possibly due to a potentially swept
(lower pressure) upper portion of the thick Asl A formation. Packer
isolation testing of the well is ongoing with plans to conduct a
remedial cement squeeze and re-perforation of the less water-prone
intervals within the Asl A.
The main Asl A pool has produced approximately 28 million
barrels of oil since being discovered in 1980, or approximately 17%
of the internally estimated 169 million barrels in place. At
year-end 2012, approximately 4.5 million barrels of proved plus
probable ("2P") remaining reserves were assigned to the Asl A pool
which, combined with historical production, equates to an ultimate
recovery factor of approximately 19%. Management believes an
additional 10% to 20% recovery factor for the K field Asl A pool is
possible primarily through infill and down-spaced drilling
opportunities. This could increase the ultimate recovery to the
30%-40% range which is a more typical recovery factor for a high
quality sandstone reservoir with an active water drive. In addition
to the planned K field drilling program the company has identified
a number of work-over/remedial well candidates to re-activate wells
with un-swept oil potential in the K field.
In M field a successful appraisal/exploration well was drilled
which encountered the main Asl A zone and three additional Asl oil
zones (new pools) below the main zone. In total, the well
encountered approximately 233 feet of net oil pay over the four
zones. The well is currently completed in the Asl D (the lower most
zone) and is producing approximately 700 Bopd.
Subsequent to the quarter, two wells were drilled resulting in
oil wells in H and M fields. The H field development oil well
encountered three of the producing oil zones in the H field. The
well will be placed on production in mid-August from the lower most
zone. The M field appraisal well extended the M west pool to the
north and encountered approximately 160 feet of net oil pay over 4
zones. The well will be completed and placed on production this
month.
The rig is currently moving to a development well in K field. It
is expected that the drilling rig will continue working in West
Bakr throughout 2013.
Production
Production from West Bakr averaged 4,889 Bopd to TransGlobe
during the second quarter, a 12% (530 Bopd) increase from the
previous quarter. Production averaged approximately 4,692 Bopd in
April, 4,817 Bopd in May, 5,160 Bopd in June and 5,070 Bopd in
July.
Production increases were attributed to new wells (K field, M
field and H field) and a successful work-over/recompletions program
in the M and K fields.
Quarterly West Bakr Production (Bopd)
2013 2012
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Q-2 Q-1 Q-4 Q-3
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Gross production rate 4,889 4,359 4,730 4,590
TransGlobe working interest 4,889 4,359 4,730 4,590
TransGlobe net (after royalties) 1,624 1,373 1,569 1,268
TransGlobe net (after royalties and tax)(i) 1,274 1,061 1,230 939
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(i) 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
The Company has participated in two Safwa development wells and
one exploration well (South Safwa 1X) during the second quarter
resulting in two oil wells and one dry hole respectively.
Subsequent to the quarter, a second exploration well (North Dabaa
1X) was drilled and cased as a potential Cretaceous oil and
Jurassic gas/condensate well.
The two development wells (Safwa 3 and Sabbar 2) were drilled
and completed as pumping Upper Bahariya oil wells. Safwa 3 was
poorly developed and initially produced approximately 25 to 30 Bopd
prior to being suspended. The Sabbar 2 well is producing
approximately 80 Bopd after a month's production.
The Safwa South-1X exploration well was drilled to a total depth
of 11,150 feet, targeting stacked zones in the Cretaceous and
Jurassic. The well was abandoned as the target formations were not
hydrocarbon bearing. The well cost approximately $2.8 million ($1.4
million to TransGlobe).
The North Dabaa 1X exploration well was drilled to a total depth
of 14,740 feet and cased as a potential Cretaceous oil and Jurassic
gas condensate well. Based on open hole well logs and samples, the
well encountered approximately 8 feet of net oil pay in the Abu
Roash formation and 23 feet of net gas/condensate pay in the
Khatatba formation. The well will be tested utilizing the drilling
rig prior to its release.
Production
Production from East Ghazalat averaged 393 Bopd to TransGlobe
during the second quarter, a 16% (55 Bopd) increase from the
previous quarter. Production from East Ghazalat averaged 423 Bopd
to TransGlobe in April, 390 Bopd in May, 366 Bopd in June and 241
Bopd in July. July production is lower primarily due to the shut-in
of Safwa 2 which was waiting on a service rig to install a new
bottom hole pump. Prior to the pump failure, the well had been
producing approximately 370 Bopd (185 Bopd to TransGlobe). The
operator has mobilized a work-over rig to change the pump.
Quarterly East Ghazalat Production (Bopd)
2013 2012
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Q-2 Q-1 Q-4 Q-3
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Gross production rate 786 677 934 163
TransGlobe working interest 393 338 467 82
TransGlobe net (after royalties) 189 170 235 41
TransGlobe net (after royalties and tax)(i) 149 135 187 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)
Operations and Exploration
The Company approved a budget for 2013 which included an initial
eight-well drilling program and the development of the Boraq 2 oil
discovery. The 2013 drilling program includes two Boraq appraisal
wells with the balance of the program focused on exploration
prospects in South Alamein.
The Company has been working closely with EGPC and the Ministry
of Oil since early 2012, to obtain military surface access
approvals in the South Alamein concession. In early June, the
Company received military approval for two exploration wells (West
Manar and Taef). The Company is cautiously optimistic that
additional well approvals will be forthcoming in the near term. The
Company has identified several drilling rigs for the initial
two-well drilling program (with two option wells) and is targeting
October to commence drilling. The West Manar and Taef exploration
prospects are targeting an estimated 11 million barrels and 25
million barrels of P mean un-risked prospective resources
respectively. The estimated prospective resources were
independently evaluated as of December 31, 2012 by DeGolyer
MacNaughton Canada Limited ("DMCL") disclosed in the January 11,
2013 press release.
Production
Concurrently the Company is discussing a potential development
lease with EGPC for the Boraq discovery which could facilitate
early production from Boraq when military access approval is
received. Originally the Company had budgeted for a Q4-2013 startup
of production from Boraq (approximately 1,800 Bopd) with an average
production rate of 460 Bopd for 2013. First oil from Boraq has been
deferred to 2014 primarily due to delayed military approvals.
South Mariut, Arab Republic of Egypt (60% working interest,
operated)
During the quarter, the Company drilled one exploration well (Al
Hammam #1) to a total depth of 8,322 feet which was subsequently
plugged and abandoned. The total well cost was approximately $2.7
million ($1.6 million to TransGlobe).
With the abandonment of Al Hammam #1, the partners have
fulfilled their commitments under the terms of the Concession
Agreement and elected to not proceed to the second and final
two-year extension period.
The Company has incurred a charge of $19.7 million against
earnings for South Mariut in the second quarter. The $19.7 million
impairment charge includes $10.0 million of drilling expenses and
$9.7 million of associated exploration/acquisition expenses.
NEW CONCESSIONS EGPC BID ROUND
EGPC announced that TransGlobe was the successful bidder on four
concessions (100% working interest) in the 2011 EGPC bid round
which closed on March 29, 2012. It is expected that the new
concessions will be ratified in late 2013 or 2014 when each
concession is passed into law. The new Energy Minister has
announced that getting new concessions approved is a priority for
his Ministry.
North West Gharib Arab Republic of Egypt (100% WI)
The Company's primary objective was obtaining the 655 square
kilometer (162,000 acre) North West Gharib concession which
surrounds and immediately offsets the Company's core West
Gharib/West Bakr producing concessions (approx. 45,000 acres). At
North West Gharib the Company expects to commence drilling shortly
after ratification and final approval of the concession into law.
The Company has identified more than 79 drilling locations based on
existing well and seismic data for the area. The Company intends to
identify additional exploration targets by acquiring 3-D seismic
data on portions of the Concessions for which such data does not
currently exist.
South West Gharib Arab Republic of Egypt (100% WI)
The 195 square kilometer (48,000 acre) South West Gharib
concession is located immediately south of the North West Gharib
concession. The Company will acquire 3-D seismic over the entire
concession prior to drilling exploration wells in the first
exploration phase.
South East Gharib Arab Republic of Egypt (100% WI)
The 508 square kilometer (125,000 acre) South East Gharib
concession is located immediately south of the South West Gharib
concession. The Company will acquire extensive 2-D and 3-D seismic
over this area prior to drilling exploration wells in the first
exploration phase.
South Ghazalat Arab Republic of Egypt (100% WI)
The 1,883 square kilometer (465,000 acre) South Ghazalat
concession is located in the Western Desert to the west of the
company's East Ghazalat concession in the prolific Abu Gharadig
basin. The Company will acquire extensive 3D seismic over this area
prior to drilling exploration wells in the first exploration
phase.
REPUBLIC OF YEMEN
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the second quarter.
Production
Field production has remained shut-in during 2013 primarily due
to labour negotiations with field employees and tender of
service/support contracts in the field. A settlement was reached
with the field employees in early April and the operator awarded
new service contracts in late May/early June. The new contractors
continue negotiations with the local tribes to provide labor for
the respective contracts. It is difficult to predict when the
contractor negotiations will be concluded and production will be
restored.
If gross field production is restored to pre-shut in levels of
approximately 6,800 Bopd, Block S-1 could contribute approximately
1,700 Bopd to TransGlobe going forward.
For guidance purposes, the Company is assuming production will
commence in Q4-2013 which would contribute an average of
approximately 400 Bopd to TransGlobe in 2013.
Quarterly Block S-1 Production and Sales (Bopd)
2013 2012
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Q-2 Q-1 Q-4 Q-3
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Gross field production rate - - 3,112 3,860
Gross sales production rate - 108 7,748 252
TransGlobe working interest - 27 1,937 63
TransGlobe net (after royalties) - 14 1,273 41
TransGlobe net (after royalties and tax)(i) - 10 1,105 36
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(i) Under the terms of the Block S-1 PSA, royalties and taxes are paid out
of the Government's share of production sharing oil.
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
One development well was drilled at Godah during the quarter.
The Godah 13 oil well is currently producing approximately 350 Bopd
(gross).
Subsequent to the quarter drilling commenced on the 4,300 meter
Salsala 1 exploration well in early July. Salsala 1 is located in
the south western corner of the Block. The well is expected to take
approximately 40 to 60 days to reach total depth. Based on internal
estimates provided by the Operator, the Salsala 1 well is targeting
an un-risked prospective gross resource potential of 2.6 million
barrels on a P mean (most likely) basis.
Production
Production sales from Block 32 averaged 3,100 Bopd (428 Bopd to
TransGlobe) during the second 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 liftings during the respective
quarter.
Field production during the second quarter averaged 2,211 Bopd
(305 Bopd to TransGlobe) which is approximately 8% lower than the
previous quarter due to natural declines and unscheduled pump
changes during the quarter.
Field production averaged approximately 2,290 Bopd (316 Bopd to
TransGlobe) during July.
Quarterly Block 32 Production and Sales (Bopd)
2013 2012
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Q-2 Q-1 Q-4 Q-3
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Gross field production rate 2,211 2,416 2,442 2,532
Gross sales production rate 3,100 1,556 3,271 1,501
TransGlobe working interest 428 215 452 207
TransGlobe net (after royalties) 264 210 253 123
TransGlobe net (after royalties and tax)(i) 211 113 185 96
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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 second quarter. The joint
interest partners have approved the Gabdain #3 exploration 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).
Block 75, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the quarter.
Future drilling has been suspended pending resolution of
logistics and security concerns.
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 9, 2013
The following discussion and analysis is management's opinion of
TransGlobe's historical financial and operating results and should
be read in conjunction with the unaudited Condensed Consolidated
Interim Financial Statements for the Company for the three and six
months ended June 30, 2013 and 2012 and the audited Consolidated
Financial Statements and management's discussion and analysis
("MD&A") for the year ended December 31, 2012 included in the
Company's annual report. The Condensed Consolidated Interim
Financial Statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board in the currency of the
United States (except where otherwise noted). Additional
information relating to the Company, including the Company's Annual
Information Form, is on SEDAR at www.sedar.com. The Company's
annual report on 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, but not limited to,
management's assessment of future plans and operations, anticipated
increases to the Company's reserves and production, the possible
sale of the Company's assets in Yemen, collection of accounts
receivable from the Egyptian Government, drilling plans and the
timing thereof, commodity price risk management strategies,
adapting to the current political situations in Egypt and Yemen,
reserve estimates, management's expectation for results of
operations for 2013, including expected 2013 average production,
funds flow from operations, the 2013 capital program for
exploration and development, the timing and method of financing
thereof, method of funding drilling commitments, and commodity
prices and expected volatility thereof. Statements relating to
"reserves" are deemed to be forward-looking statements, as they
involve the implied assessment, based on certain estimates and
assumptions, that the reserves described can be profitably produced
in the future.
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 provided herein 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.
MANAGEMENT STRATEGY AND OUTLOOK
The 2013 outlook provides information as to management's
expectation for results of operations for 2013. Readers are
cautioned that the 2013 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.
2013 Production Outlook
Production Forecast
2012
2013 Guidance Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil per day 19,000 - 20,000 17,496 9 - 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 Updated Funds Flow From Operations Outlook
On June 20, 2013, the Company provided an update of its expected
capital program, production and funds flow for 2013. Funds flow
from operations guidance of $145.0 million ($1.92/share) is based
on an average Dated Brent oil price of $100/Bbl (after Q2-2013) and
assumes the mid-point of the production guidance. Variations in
production and commodity prices during the remainder of 2013 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 2013
funds flow by approximately $8.2 million or $0.11/share.
Funds Flow Forecast
2012
($ millions) 2013 Guidance Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations 145.0 153.5 (6)
Dated Brent oil price ($ per Bbl) 100.00 111.56 (10)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 Capital Budget
($ millions) 2013 Guidance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 75.0
Yemen 5.0
----------------------------------------------------------------------------
Total 80.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The 2013 capital program is split 72:28 between development and
exploration, respectively. The Company plans to participate in 46
wells in 2013. It is anticipated that the Company will fund its
2013 capital budget from funds flow from operations and working
capital.
The Company's Yemen divestiture process has been extended until
Block S-1 production is resumed.
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 Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
($000s) 2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating activities 16,347 24,603 68,247 26,374
Changes in non-cash working capital 16,540 10,571 645 44,888
----------------------------------------------------------------------------
Funds flow from operations(i) 32,887 35,174 68,892 71,262
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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").
SELECTED QUARTERLY FINANCIAL INFORMATION
2013 2012
----------------------------------------------------------------------------
(000s, except per share, price and
volume amounts) Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
Average production volumes (Bopd) 18,417 18,001 17,875 18,143
Average sales volumes (Bopd) 18,539 17,909 19,148 17,124
Average price ($/Bbl) 90.48 99.21 98.70 96.88
Oil sales 152,646 159,915 173,864 152,624
Oil sales, net of royalties 76,223 79,366 92,281 74,540
Cash flow from operating activities 16,347 51,900 65,250 2,368
Funds flow from operations(i) 32,887 36,005 46,839 35,397
Funds flow from operations per
share
- Basic 0.45 0.49 0.63 0.49
- Diluted 0.40 0.44 0.57 0.47
Net earnings 10,397 24,878 34,836 11,774
Net earnings (loss) - diluted (183) 21,427 32,156 11,774
Net earnings per share
- Basic 0.14 0.34 0.48 0.16
- Diluted - 0.26 0.39 0.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets 670,996 672,675 653,425 635,529
Cash and cash equivalents 101,435 112,180 82,974 45,732
Convertible debentures 81,830 93,842 98,742 102,920
Total long-term debt, including
current portion 15,224 17,097 16,885 31,878
Debt-to-funds flow ratio(ii) 0.6 0.7 0.8 1.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2012 2011
----------------------------------------------------------------------------
(000s, except per share, price and
volume amounts) Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
Average production volumes (Bopd) 16,978 16,720 12,054 13,406
Average sales volumes (Bopd) 16,978 16,720 12,054 13,406
Average price ($/Bbl) 95.84 104.78 99.12 104.00
Oil sales 148,078 159,426 109,919 128,265
Oil sales, net of royalties 73,633 77,212 60,609 71,769
Cash flow from operating activities 24,603 1,771 2,330 3,456
Funds flow from operations(i) 35,174 36,088 26,469 37,980
Funds flow from operations per
share
- Basic 0.48 0.49 0.36 0.52
- Diluted 0.43 0.48 0.35 0.51
Net earnings 30,149 10,975 30,519 26,110
Net earnings (loss) - diluted 20,821 10,975 30,519 26,110
Net earnings per share
- Basic 0.41 0.15 0.42 0.36
- Diluted 0.25 0.15 0.41 0.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets 620,937 648,012 525,806 465,262
Cash and cash equivalents 72,230 127,313 43,884 105,007
Convertible debentures 95,043 105,835 - -
Total long-term debt, including
current portion 37,855 57,910 57,609 57,303
Debt-to-funds flow ratio(ii) 1.0 1.2 0.5 0.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 measure that represents total long-term debt
(including the current portion) plus convertible debentures over funds
flow from operations from the trailing 12 months and may not be
comparable to measures used by other companies.
During the second quarter of 2013, TransGlobe has:
-- Maintained a strong financial position, reporting a debt-to-funds flow
ratio of 0.6 at June 30, 2013;
-- Reported net earnings of $10.4 million, which includes an impairment
loss of $19.7 million on the Company's South Mariut assets and a $9.1
million unrealized non-cash gain on convertible debentures;
-- Experienced a reduction in oil sales compared to Q1-2013 primarily as a
result of reduced oil prices;
-- Achieved funds flow from operations of $32.9 million;
-- Experienced reduced cash flow from operating activities as compared to
Q1-2013, which is mostly due to lower collections on accounts receivable
balances; and
-- Spent $19.3 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 an unrealized gain on convertible debentures of $9.1 million in
the second quarter of 2013 (2012 - $8.8 million); and
-- Reported no diluted earnings per share in Q2-2013, which varies
significantly from basic earnings per share of $0.14. The prescribed
calculation resulted in a significant reduction in diluted earnings per
share due to the effect of the convertible debentures. Diluted earnings
per share prior to the dilutive effect of the convertible debentures was
$0.14.
2013 TO 2012 NET EARNINGS VARIANCES
$ Per Share
$000s Diluted % Variance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q2-2012 net earnings(i) 30,149 0.40
----------------------------------------------------------------------------
Cash items
Volume variance 13,036 0.15 42
Price variance (8,468) (0.10) (28)
Royalties (1,978) (0.02) (7)
Expenses:
Production and operating (6,093) (0.07) (20)
Cash general and
administrative 917 0.01 3
Exploration 40 - -
Current income taxes 229 - 1
Realized foreign exchange
gain (loss) (27) - -
Issue costs for convertible
debentures 241 - 1
Interest on long-term debt 315 - 1
Other income 57 - -
----------------------------------------------------------------------------
Total cash items variance (1,731) (0.03) (7)
----------------------------------------------------------------------------
Non-cash items
Unrealized derivative loss 1 - -
Unrealized foreign exchange
gain 435 0.01 1
Depletion, depreciation and
amortization (298) - (1)
Unrealized gain (loss) on
financial instruments 260 - 1
Impairment loss (19,709) (0.25) (65)
Stock-based compensation (447) (0.01) (1)
Deferred income taxes 1,688 0.02 6
Deferred lease inducement 2 - -
Amortization of deferred
financing costs 47 - -
----------------------------------------------------------------------------
Total non-cash items
variance (18,021) (0.23) (59)
----------------------------------------------------------------------------
Q2-2013 net earnings 10,397 0.14 (66)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other items affecting
diluted earnings per share
Convertible debentures (0.14) (34)
----------------------------------------------------------------------------
Q2-2013 net earnings per
share - diluted - (100)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Diluted earnings per share for Q2-2012 is presented prior to the
dilutive effect of the convertible debentures in that period.
Net earnings decreased to $10.4 million in Q2-2013 compared to
$30.1 million in Q2-2012, which was mainly due to an impairment
loss recognized on the Company's South Mariut assets in Q2-2013,
combined with increased production and operating costs. The
earnings impact of increased volumes were mostly offset by price
reductions and increased royalties.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
2013 2012
----------------------------------------------------------------------------
Q-2 Q-1 Q-4 Q-3 Q-2
----------------------------------------------------------------------------
Dated Brent average oil price
($/Bbl) 102.44 112.59 109.97 109.61 108.19
U.S./Canadian Dollar average
exchange rate 1.023 1.009 0.991 0.995 1.006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The price of Dated Brent oil averaged 9% lower in Q2-2013
compared with Q1-2013. All of the Company's production is priced
based on Dated Brent and shared with the respective governments
through PSCs. When the price of oil increases, 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. Timing
differences often exist between the Company's recognition of costs
and their recovery as the Company accounts for costs on an accrual
basis, whereas cost recovery is determined on a cash basis. If the
eligible cost recovery is less than the maximum defined cost
recovery, the difference is defined as "excess". In Egypt, the
Contractor's share of excess ranges between 0% and 30% depending on
the contract. In Yemen, the excess is treated as production sharing
oil. If the eligible cost recovery exceeds the maximum allowed
percentage, the unclaimed cost recovery is carried forward to the
next quarter. Typically maximum cost recovery or cost oil ranges
from 25% to 30% in Egypt and 50% to 60% in Yemen. The balance of
the production after maximum cost recovery 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. While exploration
and development activities have only been subjected to short-term
interruptions, the Company has continued to experience delays in
the collection of accounts receivable from the Egyptian Government
due to the economic impact caused by the political and civil
instability in the country. The Company is in continual discussions
with the Egyptian Government to determine solutions to the delayed
cash collections, and expects to recover the accounts receivable
balance in full. During the first six months of 2013, the Company
collected $106.9 million in accounts receivable from the Egyptian
Government. The Company expects to receive approximately $115
million in the second half of 2013 through monthly cash payments
and through an additional one and a half cargo liftings. These
cargo liftings have a current estimated value of $70 million to $75
million depending on the prevailing oil price at the time of
lifting. A typical full cargo lifting is approximately 510,000
barrels.
In late June civil protests in Egypt led to the Egyptian
military removing the President from his office. Immediately
following his removal an interim government was appointed and a
road map to new elections, that are expected to take place in early
2014, was announced. These events have had no significant impact on
the Company's current operations. At this time it is not possible
for TransGlobe to predict how the transition to a newly-elected
government will impact the Company in the long-term. However, the
interim government officials appointed and the significant
financial support pledged from neighboring countries are viewed as
positive by TransGlobe.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest before Royalties (Bopd)
Production Volumes
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 18,111 16,586 17,890 16,505
Yemen 306 356 319 364
----------------------------------------------------------------------------
Total Company 18,417 16,942 18,209 16,869
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales Volumes
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 18,111 16,586 17,890 16,505
Yemen 428 392 335 345
----------------------------------------------------------------------------
Total Company 18,539 16,978 18,225 16,850
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback
Consolidated
Six Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ /Bbl $ /Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 312,561 94.75 307,504 100.27
Royalties 156,972 47.59 156,659 51.08
Current taxes 44,116 13.37 44,582 14.54
Production and operating expenses 32,061 9.72 23,402 7.63
----------------------------------------------------------------------------
Netback 79,412 24.07 82,861 27.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 152,646 90.48 148,078 95.84
Royalties 76,423 45.30 74,445 48.18
Current taxes 21,042 12.47 21,271 13.77
Production and operating expenses 17,529 10.39 11,436 7.40
----------------------------------------------------------------------------
Netback 37,652 22.32 40,926 26.49
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt
Six Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 306,034 94.51 300,412 100.01
Royalties 154,496 47.71 153,616 51.14
Current taxes 43,326 13.38 43,572 14.51
Production and operating expenses 28,081 8.67 19,042 6.34
----------------------------------------------------------------------------
Netback 80,131 24.75 84,182 28.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 148,545 90.13 144,222 95.55
Royalties 74,852 45.42 72,883 48.29
Current taxes 20,536 12.46 20,743 13.74
Production and operating expenses 15,350 9.31 9,094 6.03
----------------------------------------------------------------------------
Netback 37,807 22.94 41,502 27.49
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The netback per Bbl in Egypt decreased 17% and 12%,
respectively, in the three and six months ended June 30, 2013
compared with the same periods of 2012. The main reason for the
decreased netback was the effect of a 6% and 5% reduction in
realized oil prices, respectively, in the three and six months
ended June 30, 2013 compared with the same periods of 2012.
Production and operating expenses increased by $3.28/Bbl and
$2.33/Bbl, respectively, which was principally a result of
increased third party oil treatment fees, increased diesel
consumption and pricing, and the addition of East Ghazalat
production in the third quarter of 2012 which has higher operating
costs on a per Bbl basis. The increase in production and operating
expenses resulted in an increase in cost oil allocated to the
Company, which reduced royalties and taxes on a per Bbl basis. The
average selling price during the three months ended June 30, 2013
was $90.13/Bbl, which represents a gravity/quality adjustment of
approximately $12.31/Bbl to the average Dated Brent oil price for
the period of $102.44/Bbl.
Royalties and taxes as a percentage of revenue decreased
slightly to 64% and 65%, respectively, in the three and six months
ended June 30, 2013, compared with the 65% and 66% ratios reported
in the same periods of 2012.
Yemen
Six Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 6,527 107.64 7,092 112.95
Royalties 2,476 40.83 3,043 48.46
Current taxes 790 13.03 1,010 16.09
Production and operating
expenses 3,980 65.64 4,360 69.44
----------------------------------------------------------------------------
Netback (719) (11.86) (1,321) (21.04)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 4,101 105.29 3,856 108.10
Royalties 1,571 40.34 1,562 43.79
Current taxes 506 12.99 528 14.80
Production and operating
expenses 2,179 55.95 2,342 65.65
----------------------------------------------------------------------------
Netback (155) (3.99) (576) (16.14)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Yemen, the Company experienced negative netbacks per Bbl of
$3.99 and $11.86, respectively, in the three and six months ended
June 30, 2013. Production and operating expenses on a per Bbl basis
remained elevated in Q2-2013 as a result of production being
shut-in on Block S-1 for the entire quarter. While production
volumes were down, the Company continued to incur the majority of
the production and operating costs on Block S-1 which significantly
increased production and operating expenses per Bbl. Block S-1
production and operating expenses contributed $12.88/Bbl and
$27.30/Bbl, respectively, to the production and operating expenses
per Bbl in the tables above for the three and six months ended June
30, 2013. After being shut-in for several months, when production
resumed on Block S-1 in July 2012 and again in November 2012 all
operating expenses accumulated during the shut-in period were
recovered through cost oil within the first two months of
production. Similarly, the Block S-1 production and operating costs
incurred while shut-in during 2013 will be recovered from cost oil
when production resumes.
Royalties and taxes as a percentage of revenue decreased to 51%
and 50%, respectively, in the three and six months ended June 30,
2013, compared with 54% and 57% in the same periods of 2012.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
Six Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 12,706 3.85 12,881 4.20
Stock-based compensation 2,562 0.78 1,977 0.64
Capitalized G&A and overhead
recoveries (1,849) (0.56) (1,379) (0.45)
----------------------------------------------------------------------------
G&A (net) 13,419 4.07 13,479 4.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 5,799 3.44 6,610 4.28
Stock-based compensation 1,284 0.76 837 0.54
Capitalized G&A and overhead
recoveries (764) (0.45) (656) (0.43)
----------------------------------------------------------------------------
G&A (net) 6,319 3.75 6,791 4.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A expenses (net) in the three and six months ended June
30, 2013 remained relatively consistent compared with the same
periods in 2012. On a per Bbl basis, decreases of 15% and 7%,
respectively, in the three and six months ended June 30, 2013
compared with 2012 are mainly the result of increased sales volumes
in 2013.
FINANCE COSTS
Finance costs for the three and six months ended June 30, 2013
decreased to $2.2 million and $4.4 million, respectively (2012 -
$2.8 million and $9.0 million, respectively). The Company incurred
convertible debenture issue costs of $4.6 million during the six
months ended June 30, 2012, which caused a significant increase in
finance costs during that period. The decrease in finance costs
during the first half of 2013 relates principally to the absence of
the convertible debenture issue costs in the current year.
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
(000s) 2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest expense $ 1,929 $ 2,244 $ 3,869 $ 3,761
Issue costs for convertible
debentures - 241 - 4,630
Amortization of deferred financing
costs 283 30 545 630
----------------------------------------------------------------------------
Finance costs $ 2,212 $ 2,815 $ 4,414 $ 9,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company had $18.5 million ($15.2 million net of unamortized
deferred financing costs) of long-term debt outstanding at June 30,
2013 (June 30, 2012 - $40.0 million). On June 11, 2013, the Company
finalized an amendment to the Borrowing Base Facility, which
re-established the borrowing base at $100.0 million and extended
the term of the facility to December 31, 2017. The long-term debt
that was outstanding under the Borrowing Base Facility at June 30,
2013 bore interest at LIBOR plus an applicable margin that varies
from 5.0% to 5.5% 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. 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 per common share).
Interest of 6% is payable semi-annually in arrears on March 31 and
September 30. 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")
Six Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 22,430 6.93 22,864 7.61
Yemen 634 10.46 449 7.15
Corporate 176 - 198 -
----------------------------------------------------------------------------
23,240 7.05 23,511 7.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended June 30
----------------------------------------------------------------------------
2013 2012
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 11,540 7.00 11,563 7.66
Yemen 432 11.09 201 5.63
Corporate 88 - (2)
----------------------------------------------------------------------------
12,060 7.15 11,762 7.61
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, DD&A decreased 9% on a per Bbl basis for the three
and six month periods ended June 30, 2013 compared to 2012. This
decrease is mostly due to proved plus probable reserve additions
during the third and fourth quarters of 2012.
In Yemen, DD&A increased 97% and 46%, respectively, on a per
Bbl basis for the three and six month periods ended June 30, 2013
compared to 2012. These increases are due to a smaller reserve base
over which capital costs are being depleted and increased future
development costs in the first six months of 2013 as compared to
2012.
IMPAIRMENT OF EXPLORATION AND EVALUATION ASSETS
On the South Mariut block, the Company drilled two exploration
wells during the first quarter of 2013 and one exploration well
during the second quarter of 2013, all of which were dry. The
Company and its joint interest partner fulfilled their commitments
under the terms of the South Mariut Concession Agreement, and
elected not to commit to the second and final two-year extension
period and subsequently relinquished the block. Because the Company
and its partners have no plans for further exploration in the South
Mariut block, the Company recorded an impairment loss on the South
Mariut exploration and evaluation assets in the amount of $19.7
million during the second quarter of 2013. The impairment relates
to all intangible exploration and evaluation asset costs carried at
South Mariut as at June 30, 2013.
CAPITAL EXPENDITURES
Six Months Ended June 30
----------------------------------------------------------------------------
($000s) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 36,093 18,467
Yemen 1,377 373
Acquisitions - 23,097
Corporate 18 82
----------------------------------------------------------------------------
Total 37,488 42,019
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, total capital expenditures in the first six months of
2013 were $36.1 million (2012 - $18.5 million). During the first
six months of the year, the Company drilled ten wells at West
Gharib (seven oil wells at Arta, one oil well at Hana, along with
one oil well and one dry hole at East Arta). The Company also
drilled eight oil wells at West Bakr, two oil wells and one dry
hole at East Ghazalat, and three dry holes at South Mariut.
OUTSTANDING SHARE DATA
As at June 30, 2013, the Company had 73,894,138 common shares
issued and outstanding and 7,000,101 stock options issued and
outstanding, which are exercisable in accordance with their terms
into a maximum of 7,000,101 common shares of the Company.
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 0.6 times at June 30, 2013 (December
31, 2012 - 0.8). 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 June 30, 2013 and 2012:
Sources and Uses of Cash
Six Months Ended June 30
----------------------------------------------------------------------------
($000s) 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
Funds flow from operations(i) 68,892 71,262
Transfer from restricted cash - 807
Issue of convertible debentures - 97,851
Exercise of stock options 500 1,522
Other - 168
----------------------------------------------------------------------------
69,392 171,610
Cash used
Capital expenditures 37,488 18,922
Deferred financing costs 2,205 -
Transfer to restricted cash 1 -
Acquisitions - 23,097
Repayment of long-term debt - 20,000
Finance costs 3,558 6,023
Other 1,517 329
----------------------------------------------------------------------------
44,769 68,371
----------------------------------------------------------------------------
24,623 103,239
Changes in non-cash working capital (6,162) (74,510)
----------------------------------------------------------------------------
Increase in cash and cash equivalents 18,461 28,729
Cash and cash equivalents - beginning of period 82,974 43,884
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 101,435 72,613
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 2013
exploration and development program, which is estimated at $80.0
million ($42.5 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
including timely collections of accounts receivable from the
Egyptian Government may impact capital resources.
Working capital is the amount by which current assets exceed
current liabilities. At June 30, 2013, the Company had working
capital of $286.8 million (December 31, 2012 - $262.2 million). The
increase to working capital in Q2-2013 is principally the result of
an increase in cash and cash equivalents. The majority of the
Company's accounts receivable are due from Egyptian General
Petroleum Company ("EGPC"), and the continued political changes in
the country have increased EGPC's credit risk, which has 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 expects to recover the entire
accounts receivable balance in full. In addition to receiving
variable monthly cash payments, the Company is scheduled to receive
one and a half cargo liftings in the second half of 2013 at an
estimated value of $70 million to $75 million depending on the
prevailing oil price at the time of lifting. A typical full cargo
lifting is approximately 510,000 barrels.
At June 30, 2013, TransGlobe had $100.0 million available under
a Borrowing Base Facility of which $18.5 million was drawn. As
repayments on the Borrowing Base Facility are not expected to
commence until 2017, 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.
($000s) June 30, 2013 December 31, 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bank debt 18,450 18,450
Deferred financing costs (3,226) (1,565)
----------------------------------------------------------------------------
Long-term debt (net of deferred
financing costs) 15,224 16,885
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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
Financial Contractual Less than 1
Statements Cash Flows year
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities Yes-Liability 47,031 47,031
Long-term debt Yes-Liability 18,450 -
Convertible debentures Yes-Liability 81,830 -
Office, equipment and drilling
rig leases No 18,346 11,328
Minimum work commitments(3) No 750 750
----------------------------------------------------------------------------
Total 166,407 59,109
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000s) Payment Due by Period(1,2)
----------------------------------------------------------------------------
More than 5
1-3 years 4-5 years years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities - - -
Long-term debt - 18,450 -
Convertible debentures - 81,830 -
Office, equipment and drilling
rig leases 2,638 2,030 2,350
Minimum work commitments(3) - - -
----------------------------------------------------------------------------
Total 2,638 102,310 2,350
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs, finance costs and payments
made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at June
30, 2013 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
The Company is subject to certain office, equipment and drilling
rig leases.
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, 2014.
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, 2012, no additional fees were due in
2013.
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 litigation proceedings 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 June 30, 2013.
CHANGES IN ACCOUNTING POLICIES
New accounting policies
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; accordingly, the Company has
adopted this standard for the year ending December 31, 2013. The
adoption of this standard had no material impact on the Condensed
Consolidated Interim Financial Statements.
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; accordingly, the Company has adopted this standard
for the year ending December 31, 2013. The adoption of this
standard had no material impact on the Condensed Consolidated
Interim Financial Statements.
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; accordingly, the Company has
adopted this standard for the year ending December 31, 2013. The
adoption of this standard had no material impact on the Condensed
Consolidated Interim Financial Statements.
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; accordingly, the Company has adopted this
standard for the year ending December 31, 2013. The adoption of
this standard had no material impact on the Condensed Consolidated
Interim Financial Statements.
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; accordingly, the Company has
adopted these amendments for the year ending December 31, 2013.
These amendments had no material impact on the Condensed
Consolidated Interim Financial Statements.
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; accordingly, the Company has adopted these
amendments for the year ending December 31, 2013. These amendments
had no material impact on the Condensed Consolidated Interim
Financial Statements.
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;
accordingly, the Company has adopted these amendments for the year
ending December 31, 2013. These amendments had no material impact
on the Condensed Consolidated Interim Financial Statements.
Future changes to accounting policies
As at the date of authorization of the Condensed Consolidated
Interim Financial Statements the following Standards and
Interpretations which have not yet been applied in the Condensed
Consolidated Interim Financial Statements have been issued but are
not yet effective:
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 Condensed Consolidated Interim Financial
Statements.
IFRS 10 (revised) "Consolidated Financial Statements"
In October 2012, the IASB issued amendments to IFRS 10 to define
investment entities, provide an exception to the consolidation of
investment entities by a parent company, and prescribe fair value
measurement to measure such entities. These amendments are
effective for annual periods beginning on or after January 1, 2014.
The Company is currently evaluating the impact of these amendments
on its Condensed Consolidated Interim Financial Statements.
IFRS 12 (revised) "Disclosure of interests in other
entities"
In October 2012, the IASB issued amendments to IFRS 12 to
prescribe disclosures about significant judgments and assumptions
used to determine whether an entity is an investment entity as well
as other disclosures regarding the measurement of such entities.
These amendments are effective for annual periods beginning on or
after January 1, 2014. The Company is currently evaluating the
impact of these amendments on its Condensed Consolidated Interim
Financial Statements.
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 Condensed
Consolidated Interim 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 and
as defined in Rule 13a-15 under the US Securities Exchange Act of
1934. 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 June 30, 2013 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 Six Months Ended
June 30 June 30
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
Oil sales, net of royalties $ 76,223 $ 73,633 $155,589 $150,845
Derivative gain (loss) on
commodity contracts - (1) - (125)
Finance revenue 183 126 229 251
----------------------------------------------------------------------------
76,406 73,758 155,818 150,971
----------------------------------------------------------------------------
EXPENSES
Production and operating 17,529 11,436 32,061 23,402
General and administrative 6,319 6,791 13,419 13,479
Foreign exchange (gain) loss (2,210) (1,802) (3,728) (2,174)
Finance costs 2,212 2,815 4,414 9,021
Exploration 71 111 178 671
Depletion, depreciation and
amortization 12,060 11,762 23,240 23,511
Unrealized (gain) loss on
financial instruments (9,098) (8,838) (12,088) (998)
Impairment of exploration and
evaluation assets 19,710 1 19,710 17
----------------------------------------------------------------------------
46,593 22,276 77,206 66,929
----------------------------------------------------------------------------
Earnings before income taxes 29,813 51,482 78,612 84,042
Income tax expense (recovery) -
current 21,042 21,271 44,116 44,582
- deferred (1,626) 62 (779) (1,664)
----------------------------------------------------------------------------
19,416 21,333 43,337 42,918
----------------------------------------------------------------------------
NET EARNINGS AND COMPREHENSIVE
INCOME FORTHE PERIOD $10,397 $30,149 $35,275 $41,124
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
Basic $ 0.14 $ 0.41 $ 0.48 $ 0.56
Diluted $ - $ 0.25 $ 0.26 $ 0.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
As at As at
June 30, December
2013 31, 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 101,435 $ 82,974
Accounts receivable 222,318 221,017
Prepaids and other 10,083 6,813
----------------------------------------------------------------------------
333,836 310,804
Non-Current
Restricted cash 783 782
Intangible exploration and evaluation assets 33,220 48,414
Property and equipment
Petroleum properties 291,047 280,895
Other assets 3,930 4,350
Goodwill 8,180 8,180
----------------------------------------------------------------------------
$ 670,996 $ 653,425
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 47,031 $ 48,587
----------------------------------------------------------------------------
47,031 48,587
Non-Current
Long-term debt 15,224 16,885
Convertible debentures 81,830 98,742
Deferred taxes 51,585 52,363
Other long-term liabilities 881 988
----------------------------------------------------------------------------
196,551 217,565
----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital 159,401 158,721
Contributed surplus 14,344 11,714
Retained earnings 300,700 265,425
----------------------------------------------------------------------------
474,445 435,860
----------------------------------------------------------------------------
$ 670,996 $ 653,425
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Statements of Changes in
Shareholders' Equity
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Six Months Ended
June 30 June 30
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share Capital
Balance, beginning of period $159,259 $154,631 $158,721 $154,263
Stock options exercised 104 1,254 500 1,522
Transfer to share capital on
exercise of options 38 435 180 535
----------------------------------------------------------------------------
Balance, end of period $159,401 $156,320 $159,401 $156,320
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contributed Surplus
Balance, beginning of period $ 12,879 $ 9,252 $ 11,714 $ 8,538
Stock-based compensation
expense 1,503 1,027 2,810 1,841
Transfer to share capital on
exercise of options (38) (435) (180) (535)
----------------------------------------------------------------------------
Balance, end of period $ 14,344 $ 9,844 $ 14,344 $ 9,844
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Retained Earnings
Balance, beginning of period $290,303 $188,666 $265,425 $177,691
Net earnings 10,397 30,149 35,275 41,124
----------------------------------------------------------------------------
Balance, end of period $300,700 $218,815 $300,700 $218,815
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Six Months Ended
June 30 June 30
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
OPERATING
Net earnings for the period $ 10,397 $ 30,149 $ 35,275 $ 41,124
Adjustments for:
Depletion, depreciation and
amortization 12,060 11,762 23,240 23,511
Deferred lease inducement 113 115 228 229
Impairment of exploration and
evaluation costs 19,710 1 19,710 17
Stock-based compensation 1,284 837 2,562 1,977
Finance costs 2,212 2,815 4,414 9,021
Income tax expense 19,416 21,333 43,337 42,918
Unrealized (gain) loss on
commodity contracts - 1 - 125
Unrealized (gain) loss on
financial instruments (9,098) (8,838) (12,088) (998)
Unrealized (gain) loss on
foreign currency translation (2,165) (1,730) (3,670) (2,080)
Income taxes paid (21,042) (21,271) (44,116) (44,582)
Changes in non-cash working
capital (16,540) (10,571) (645) (44,888)
----------------------------------------------------------------------------
Net cash generated by (used in)
operating activities 16,347 24,603 68,247 26,374
----------------------------------------------------------------------------
INVESTING
Additions to intangible
exploration and evaluation
assets (1,040) (1,250) (4,516) (1,521)
Additions to petroleum
properties (18,229) (12,811) (32,906) (16,772)
Additions to other assets (26) (389) (66) (629)
Business acquisitions - (23,097) - (23,097)
Changes in restricted cash - 808 (1) 807
Changes in non-cash working
capital (4,624) (24,145) (5,517) (32,085)
----------------------------------------------------------------------------
Net cash generated by (used in)
investing activities (23,919) (60,884) (43,006) (73,297)
----------------------------------------------------------------------------
FINANCING
Issue of common shares for cash 104 1,254 500 1,522
Financing costs (2,155) (383) (2,205) (383)
Interest paid (185) (586) (3,558) (1,393)
Issue of convertible debentures - - - 97,851
Issue costs for convertible
debentures - (241) - (4,630)
Repayments of long-term debt - (20,000) - (20,000)
Decrease in other long-term
liabilities (141) (165) (285) (329)
Changes in non-cash working
capital - 1,658 - 2,463
----------------------------------------------------------------------------
Net cash generated by (used in)
financing activities (2,377) (18,463) (5,548) 75,101
Currency translation differences
relating to cash and cash
equivalents (796) (339) (1,232) 168
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (10,745) (55,083) 18,461 28,346
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 112,180 127,313 82,974 43,884
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $101,435 $ 72,230 $101,435 $ 72,230
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TransGlobe Energy Corporation is a Calgary-based,
growth-oriented oil and gas exploration and development company
focused on the Middle East/North Africa region with production
operations in the Arab Republic of Egypt and the Republic of Yemen.
TransGlobe's common shares trade on the Toronto Stock Exchange
under the symbol TGL and on the NASDAQ Exchange under the symbol
TGA.
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. In
particular, this press release contains forward-looking statements
regarding the Company's appraisal, development and evaluation plans
and the focus of the Company's exploration budget. In addition,
information and statements relating to "resources" are deemed to be
forward-looking information and statements, as they involve the
implied assessment, based on certain estimates and assumptions,
that the resources described exist in the quantities predicted or
estimated, and that the resources described can be profitably
produced in the future.
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. With respect to
forward-looking statements contained in this press release,
assumptions have been made regarding, among other things: the
Company's ability to obtain qualified staff and equipment in a
timely and cost-efficient manner; the regulatory framework
governing royalties, taxes and environmental matters in the
jurisdictions in which the Company conducts and will conduct its
business; future capital expenditures to be made by the Company;
future sources of funding for the Company's capital programs;
geological and engineering estimates in respect of the Company's
reserves and resources; and the geography of the areas in which the
Company is conducting exploration and development activities.
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, including additional risks related to
TransGlobe's business.
Contacts: Investor Relations Transglobe Energy Corporation Scott
Koyich (403) 264-9888investor.relations@trans-globe.com
www.trans-globe.com
TransGlobe Energy (TSX:TGL)
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TransGlobe Energy (TSX:TGL)
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