TGL TransGlobe Energy Corporation

Horizon Partners ("Horizon"), a privately-owned firm that manages the Horizon Absolute Return Fund Limited (“HARF”), which is a shareholder of TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX: TGL), issued today a public statement urging all shareholders of TransGlobe to VOTE AGAINST the proposed plan of arrangement pursuant to which Vaalco Energy, Inc. ("Vaalco") would acquire all of the issued and outstanding common shares of TransGlobe in a stock-for-stock business combination transaction (the "Proposed Transaction"). The Proposed Transaction will be considered at a special meeting of the Company currently scheduled to take place on September 29, 2022 (the "Meeting").  

Juan Argento, Managing Partner of Horizon, said, "Horizon believes that the Proposed Transaction severely undervalues the Company, and is not fair to or in the best interests of the Company or its shareholders. Moreover, payment of the purchase price in Vaalco shares is extremely unattractive and not without significant risk. Not only have Vaalco shares declined by approximately 25% since the Proposed Transaction was announced reducing the value to be received by TransGlobe shareholders if the Proposed Transaction is completed, but even such reduced value is predicated on speculative expectations of uncertain future exploration results, given Vaalco’s very limited certified reserves and short reserve life. Finally, the share exchange ratio of 54.5% (for Vaalco shareholders) to 45.5% (for TransGlobe shareholders) unfairly favours Vaalco shareholders and is not in the best interests of TransGlobe shareholders, as TransGlobe is a significantly more valuable company than Vaalco, according to the relevant tangible comparable metrics." 

Horizon believes that TransGlobe shareholders should VOTE AGAINST the Proposed Transaction so that the Company can instead pursue certain alternatives that we currently anticipate would result in greater long-term value to all shareholders of CAD 9.11 to CAD 9.73 per share as compared with the CAD 4.10 per share shareholders will be forced to accept if the Proposed Transaction is approved at the Meeting. These alternatives include (i) securing the effective date adjustment payment from the Egyptian government2, valued in the Company’s balance sheet at USD 67.5 million, (ii) pursuing a sale of the Company’s Canadian business, which Horizon estimates has a value of USD 85 million to USD 120 million and rationalizing Canadian CAPEX to maximize free cash flow; (iii) payment of a distribution to shareholders in an amount equal to at least 75% of the sum of (a) the net proceeds from the above alternatives (i) and (ii), and (b) the Company’s 2022 free cash flow which the Company estimates at USD 70 million3, (iv) continuing to operate and grow the Company’s Egyptian business, which is expected to generate USD 64.4 million of free cash flow in calendar year 2023, as per Capital IQ, and (v) considering other potential transactions identified in the future.

Consistent with such course of action, Horizon currently estimates that the Company is in a position to generate approximately CAD 5.09 to CAD 5.71 per share in cash within the next 12 months, while maintaining its full stake in its core Egypt assets, which Horizon estimates are worth at least 1.0x its December 31, 2021 reported after-tax NPV10 of P1 reserves of USD 226.9 million or an additional CAD 4.02 per share.4  

Horizon is a privately-owned firm with advisory and principal investment activities and with substantial focus on the energy industry. Horizon Capital Management, Inc., part of Horizon, manages Horizon Absolute Return Fund Limited, a British Virgin Islands Approved Fund that primarily invests in listed international oil and gas companies and is a shareholder of TransGlobe.

The text of the public statement to TransGlobe shareholders is as follows:

Dear Fellow TransGlobe Shareholders:

We are extremely disappointed with the terms of the Proposed Transaction with Vaalco for the following reasons: 

The value of the Vaalco shares, which represents the form of consideration to be received by TransGlobe shareholders for the sale of their TransGlobe shares, has dropped approximately 25% to USD 231 million since the Proposed Transaction was announced.

• The value of the Vaalco shares dropped from USD 6.23 on July 14, 2022, the date the Proposed Transaction was announced, to USD 4.69, as of September 12, 2022. This change effectively reduces the value of the consideration to be paid to TransGlobe shareholders from the announced USD 307 million to a significantly lower USD 231 million, equivalent to CAD 5.44 to CAD 4.10 per share5, representing a decline of approximately 25%. If the Proposed Transaction is approved by shareholders at the Meeting, this decline in value would impact all TransGlobe shareholders since there is no adjustment mechanism in the arrangement agreement to protect the shareholders.

At USD 231 million, the Proposed Transaction severely undervalues the Company. As a stand-alone company, Horizon believes TransGlobe is in a position to monetize USD 287 million to USD 323 million, or CAD 5.09 to CAD 5.71 per share in cash, in the next 12 months, and be achieved with TransGlobe continuing to hold its full stake in its core Egyptian business, as compared to the CAD 4.10 per share value TransGlobe shareholders will be forced to accept if the Proposed Transaction is approved at the Meeting.

Monetization Events		MM USD		CAD / Share6
		Range		Range
Effective Date Adjustment Payment from the Egyptian Government		67.5		1.20
Second Half 2022 After Tax Free Cash Flow		46.8		0.83
First Half 2023 After Tax Free Cash Flow		32.2		0.57
Sale of TransGlobe Canadian Business		85 - 120		1.50 - 2.12
Net Cash Position (as of June 30, 2022)		55.8		0.99
Possible Monetization in the Next 12 Months		287.3 - 322.3		5.09 - 5.71

• Horizon believes TransGlobe is in a position to monetize USD 287.3 million to USD 322.3 million, or CAD 5.09 to CAD 5.71 per share, in cash, within the next 12 months, while continuing to hold its full stake in its core Egyptian business, as follows:

	a)	Collect the effective date adjustment payment from the Egyptian government, which the Company has recognized as a receivable of USD 67.5 million in its most recent financial statements. Horizon believes such estimate is conservative and the Company could realize a higher sum.
	b)	The Company’s guidance for 2022 free cash flow on their June corporate presentation is USD 70 million, assuming average Brent price of USD 95. The Company’s free cash flow totaled USD 23.2 million for the first half of 2022 and therefore management expects USD 46.8 million for the second half of 2022, assuming average Brent price of USD 95.
	c)	As of September 12, 2022, Capital IQ average estimate for 2023 free cash flow is USD 64.4 million. We assume that half of such cash flow will be generated in the first half of 2023. This seems conservative given 2022 guidance and the expectation of higher production in 2023. In their March 17, 2022 report on the Company, Cannacord Genuity estimates total production of 14,234 boepd vs. 13,012 for 2022.
	d)	Horizon believes that TransGlobe’s Canadian business could be sold for USD 85 million to USD 120 million, based on a simple comparable company analysis of small capitalization Canadian publicly listed companies, which trade at approximately 3.2x 2022E EBITDA, and approximately 1.0x after-tax NPV10 of proven reserves. As of December 31, 2021, TransGlobe Canada reported an after-tax NPV10 of P1 reserves of USD 87.7 million. Horizon estimates 2022 EBITDA of USD 35.0 to 38.0 million7 for TransGlobe Canada.
	e)	As of June 30, 2022, TransGlobe’s closing net cash balance was USD 55.7 million, comprised of USD 61.1 million in cash and USD 5.4 million in debt and leases.

• Even cash consideration with a value USD 231 million (being the value as of September 12, 2022, of the Vaalco shares that TransGlobe shareholders would receive in connection with the Proposed Transaction) represents an unfair and poor deal for TransGlobe shareholders, particularly given that on a standalone basis the Company could monetize a higher amount in cash within the next 12 months, while continuing to hold its core Egyptian business, which reported an after-tax NPV10 of P1 reserves of USD 226.9 million on December 31, 2021 and is expected to have annual free cash flow in 2023 of USD 64.4 million, as per Capital IQ.   
• Furthering the unfairness of the Proposed Transaction for TransGlobe shareholders, the consideration will be paid in Vaalco shares, a much inferior, and speculative form of consideration than cash for the reasons discussed below.
• If the Proposed Transaction is approved at the Meeting, we believe that it would be done at the peril of the TransGlobe shareholders.

Vaalco shares are a speculative and poor form of consideration as their value is highly uncertain, given Vaalco’s very limited certified reserves and short reserve life. Moreover, the share exchange ratio of 54.5% (for Vaalco shareholders) to 45.5% (for TransGlobe shareholders) unfairly favours Vaalco shareholders and is not in the best interests of TransGlobe shareholders, as TransGlobe is a significantly more valuable company than Vaalco, according to the relevant tangible comparable metrics.

Metrics		TransGlobe	Vaalco	TransGlobe / Vaalco
SEC P1 Reservesas of December 31, 20218	MMboe	21.2	11.2	1.9x
SEC After Tax Net Present Value P1 Reservesas of December 31, 20218	MM USD	304.4	99.3	3.1x
2P Reservesas of December 31, 20219	MMboe	46.1	19.5	2.4x
Free Cash Flowduring the First Half of 2022	MM USD	23.210	2.811	8.3x
Total Net Cash Position	MM USD	123.3	48.0	2.6x
as of June 30, 2022	MM USD	55.810	48.011	1.2x
Effective Date Adjustment	MM USD	67.5

• Vaalco’s current market capitalization, of USD 280.6 million as of September 12, 2022, is not supported by the tangible value of certified reserves, and instead depends on a more speculative expectation of future exploration results, which may never materialize.
• SEC certified proven reserves of Vaalco as of December 31, 2021, amount to just 11.2 million barrels, roughly half of TransGlobe’s 21.2 million barrels.
• Worse still, the reported NPV10 of Vaalco’s after-tax proven reserves as of December 31, 2021, at only USD 99.2 million, is less than one-third of TransGlobe’s USD 304.4 million and does not support Vaalco’s market capitalization of USD 280.6 million as of September 12, 2022.   
• The picture is just as bad when comparing Vaalco’s 2P reserves as of December 31, 2021, at 19.5 million barrels to TransGlobe’s 46.1 million barrels.12
• Vaalco’s reported free cash flow for the first half of 2022 was only USD 2.8 million as compared with TransGlobe’s USD 23.2 million.
• We calculate Vaalco’s P1 reserve life index to be a meager 3.3 years, assuming Vaalco’s midpoint guidance production of 9,250 boepd.13
• TransGlobe is a more valuable company than Vaalco, according to the relevant tangible metrics:

	a)	As of December 31, 2021, TransGlobe reported 1.89x the SEC P1 reserves of Vaalco.
	b)	As of December 31, 2021, TransGlobe reported 2.36x the 2P reserves of Vaalco.
	c)	During the first half of 2022, TransGlobe reported 8.3x the free cash flow reported by Vaalco over the same period.
	d)	TransGlobe reported a higher net cash balance on June 30, 2022, than Vaalco, not considering the effective date adjustment of USD 67.5 million, and higher net production than Vaalco over the first half of 2022.

• Given this stark contrast in value and performance, an exchange ratio in favor of Vaalco shareholders is not fair to or in the best interests of the Company or its shareholders.
• Those in favour of the Proposed Transaction may try to argue that there is substantial potential value in the contingent resources and prospective resources of Vaalco, however TransGlobe shareholders should be cautious in taking unnecessary risks with their investment in TransGlobe by placing their faith in such potential value which is based on speculative expectations and, as such, may never materialize.

Horizon believes that TransGlobe shareholders should VOTE AGAINST the Proposed Transaction so that the Company can instead pursue certain alternatives that we currently anticipate would result in greater long-term value to all shareholders of CAD 9.11 to CAD 9.73 per share as compared with the CAD 4.10 per share shareholders will be forced to accept if the Proposed Transaction is approved at the Meeting. These alternatives include (i) securing the effective date adjustment payment from the Egyptian government, valued in the Company’s balance sheet at USD 67.5 million, (ii) pursuing a sale of the Company’s Canadian business, which Horizon estimates has a value of USD 85 million to USD 120 million and rationalizing Canadian CAPEX to maximize free cash flow; (iii) payment of a distribution to shareholders in an amount equal to at least 75% of the sum of (a) the net proceeds from the above alternatives (i) and (ii), and (b) the Company’s 2022 free cash flow which the Company estimates at USD 70 million, (iv) continuing to operate and grow the Company’s Egyptian business, which is expected to generate USD 64.4 million of free cash flow in calendar year 2023, as per Capital IQ, and (v) considering other potential transactions identified in the future.

Consistent with such course of action, Horizon currently estimates that the Company is in a position to generate approximately CAD 5.09 to CAD 5.71 per share in cash within the next 12 months, while maintaining its full stake in its core Egypt assets, which Horizon estimates are worth at least 1.0x its 12/31/2021 reported after-tax NPV10 of P1 reserves of USD 226.9 million or an additional CAD 4.02 per share.  

We believe that if shareholders of TransGlobe VOTE AGAINST the Proposed Transaction, the Company will be in a position to pursue this action plan which could result in the monetization of value for shareholders of CAD 9.11 to CAD 9.73 per share as compared to CAD 4.10 per share they will be forced to accept if the Proposed Transaction is approved at the Meeting.

Based on the clear arguments made in this letter, we intend to VOTE AGAINST the Proposed Transaction, and we urge all TransGlobe shareholders to VOTE AGAINST the Proposed Transaction at the Meeting. 

Information in Support of Public Broadcast Solicitation:The following information is provided in accordance with Canadian corporate and securities laws applicable to public broadcast solicitations. Horizon is relying on the exemption under section 9.2(4) of National Instrument 51-102 – Continuous Disclosure Obligations ("NI 51-102") to make this public broadcast solicitation. This solicitation is being made by Horizon and not by or on behalf of the management of TransGlobe. The registered office address of TransGlobe is 900, 444 - 5th Street SW., Calgary, Alberta T2P 2T8.Horizon has filed this press release containing the information required by section 9.2(4)(c) of NI 51-102 on TransGlobe's company profile on SEDAR at www.sedar.com.Horizon may solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, conveyed by way of public broadcast, including through press releases, speeches or publications, and by any other manner permitted under applicable Canadian laws. All costs incurred for the solicitation will be borne by Horizon.A TransGlobe shareholder who has given a proxy has the power to revoke it. If a TransGlobe shareholder who has given a proxy attends the Meeting at which the proxy is to be voted, such TransGlobe shareholder, may revoke the proxy and vote at the Meeting. In addition to revocation in any other manner permitted by law, a proxy may be revoked by an instrument in writing signed by the TransGlobe shareholder or his or her attorney authorized in writing, or, if the TransGlobe shareholder is a corporation, under its corporate seal and signed by a duly authorized officer or attorney for the corporation, and deposited at the registered office of TransGlobe at any time up to and including the last day (other than Saturdays, Sundays and statutory holidays in the Province of Alberta) preceding the day of the Meeting at which the proxy is to be used, or any adjournments or postponements thereof. If a TransGlobe shareholder uses a 12-digit control number to login to the Meeting online and accepts the terms and conditions, by doing so such TransGlobe shareholder will be revoking any and all previously submitted proxies; however, in such a case, the TransGlobe shareholder will be provided the opportunity to vote by ballot on the matters put forth at the Meeting. If a TransGlobe shareholder DOES NOT wish to revoke all previously submitted proxies, the TransGlobe shareholder should not accept the terms and conditions, in which case the TransGlobe shareholder can only attend the Meeting as a guest.

Horizon Absolute Return Fund Limited, an affiliate of Horizon, is a shareholder of TransGlobe. With the exception of the foregoing, to the knowledge of Horizon, neither Horizon nor any associates or affiliates of Horizon, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in the Proposed Transaction or any other matter to be acted upon at the Meeting.

FOR FURTHER INFORMATION PLEASE CONTACT:

Juan ArgentoHorizon PartnersCalle 53E, Urbanización Marbella, MMG Tower, Piso 16, Panamá, República de PanamáTel: +1 347 759 6074E-mail: jpa@horizon-partners.com

Juan Pablo SchulmanHorizon PartnersCalle 53E, Urbanización Marbella, MMG Tower, Piso 16, Panamá, República de PanamáTel: +54 911 6252 4736E-mail: jps@horizon-partners.com

Advisors:Goodmans LLP is acting as legal counsel.

ABOUT HORIZON PARTNERS.

Horizon is a privately-owned business with advisory and principal investment activities and with substantial focus on the energy industry. Horizon Capital Management, Inc., part of Horizon, manages Horizon Absolute Return Fund Limited, a British Virgin Islands Approved Fund, that primarily invests in listed international oil and gas companies and is a shareholder of TransGlobe.

Cautionary Statement Regarding Forward Looking Information All statements, other than statements of historical fact, included in this news release constitute "forward-looking information" as such term is defined in applicable Canadian securities legislation.  Forward-looking information can generally be identified by the use of forward-looking language such as "will", “would”, “could”, "expect", "intend", "plan", "estimate", "anticipate", “may”, "believe" or "continue" (and grammatical variations and the negatives thereof) and include statements concerning Horizon's intentions and strategies regarding the Company, Horizon’s views on potential alternatives to monetize value for the Company and its shareholders instead of pursuing the Proposed Transaction (and the potential timeframe for such monetization) and the impact on the financial condition, operation, business, strategies and competitive position of the Company and its future management if the Proposed Transaction is not approved by the shareholders.  Such forward-looking information is based on certain understandings, assumptions, beliefs, opinions and expectations of Horizon, including, without limitation, the Company's future growth potential, results of operations, future cash flows, ability to monetize assets, the future performance and business prospects and opportunities of the Company, the regulatory environment and economic and market conditions that the Company faces and those assumptions noted above in this news release.  Shareholders should not place undue reliance on such forward-looking information, which is not a guarantee that any particular outcome, event, result, performance or other achievement will occur.  Many risks, uncertainties and other factors could cause the actual outcomes, events, results, performance or achievements expressed or implied by such forward-looking information to vary materially from those described herein should any of those risks, uncertainties or other factors materialize.  Such risks, uncertainties and other factors include, without limitation, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; availability of credit and other financing; the financial markets in general; the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; and all other risks and uncertainties detailed in the Company's filings with applicable Canadian securities commissions, copies of which are available on SEDAR at www.sedar.com.   Accordingly, readers of this news release are cautioned not to place undue reliance on any forward-looking information contained in this news release.  All forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.  All forward-looking information contained herein is made as of this news release and Horizon undertakes no obligation to publicly update or revise any such forward-looking information, except as required by law.

SOURCE: Horizon Partners

1 TransGlobe shareholders will receive 0.6727 shares of Vaalco per share of TransGlobe. The value of Vaalco shares as of September 12, 2022, is USD 4.69, which multiplied by 0.6727 is USD 3.155, and assuming the CAD USD FX rate of 0.7704 as of the same date equals CAD 4.095 per share.   2 As described in the Company’s most recent financial statements: “Upon execution of the merged concession, there was an effective date adjustment owed to the Company for the difference between historic and merged concession agreement commercial terms applied against Eastern Desert production from the effective date of February 1, 2020. The quantum of the effective date adjustment is currently being finalized with EGPC and could result in a range of outcomes based on the final price per barrel negotiated. TransGlobe has recognized a receivable of $67.5 million at June 30, 2022, which represents the amount expected to be received from EGPC based on historical realized prices.”3 Assuming average Brent price for 2022 of USD 95.4 USD 226.9 million divided by 73.3 million shares outstanding, divided by the CAD / USD FX rate as of September 12, 2022, of 0.7704.  5 Assumes 73.3 million shares of TransGlobe outstanding, and a CAD / USD FX rate as of September 12, 2022, of 0.7704.6 Assumes CAD / USD FX rate as of September 12, 2022, of 0.7704.7 This estimated value is based on the natural gas liquids and crude oil proportional netback guidance of USD 4g0 multiplied by the production guidance range of 2,400 to 2,600 boepd provided by TransGlobe management in their June 2022 corporate presentation corresponding to a Brent crude oil average price of USD 95 for 2022.8 Vaalco Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934.9 TransGlobe and Vaalco independent reserves evaluations for the year ended December 31, 2021, as prepared by GLJ Ltd. and Netherland, Sewell & Associates, Inc., respectively. Reserves figures of TransGlobe and Vaalco are prepared under different standards and may not be directly comparable. Investor Presentation August 2022.10 TransGlobe press release: Second Quarter 2022 Financial & Operating Results.11 Vaalco press release: Second Quarter 2022 Results.12 Vaalco does not disclose the NPV10 of its 2P reserves, so a comparison with TransGlobe is not possible.13 Vaalco does not provide a calculated RLI.