ENP Newswire -
Release date- 14082014 -
All dollar values are expressed in
Second quarter production averaged 16,112 Bopd (16,485 Bopd sales);
Second quarter funds flow of
Second quarter earnings of
Drilled eight wells in the quarter resulting in eight oil wells (100% success);
Commenced exploration drilling on North West Gharib concession;
Ended the quarter with
In the Eastern Desert the Company began its exploration drilling program at NW Gharib on
Year-to-date the Company has drilled 18 wells in the Eastern Desert resulting in 15 oil wells, one water injector and two wells which were plugged and suspended. The Company has commenced the Eastern Desert (NW Gharib, SW Gharib and SE Gharib) seismic acquisition program will includes 1,000+ square kilometers of 3-D seismic and 300+ kilometers of 2-D seismic.
Eastern Desert production continues to be impacted by the faulty progressive capacity pumps ('PCPs') at West Gharib. In early August, the first batch of replacement pumps arrived in the field. The 20 replacement pumps are the smaller pumps which could be flown to
In the Western Desert the Company participated in three wells year-to-date at East Ghazalat, resulting in two oil wells and one dry hole. Drilling continues on North Dabaa 2 (appraisal well) with results expected later in August. The 400 square kilometer 3-D seismic acquisition program for the South Ghazalat block is expected to begin in 2015 upon completion of the Eastern Desert program.
Dated Brent oil prices averaged
The Company had net earnings in the quarter of
TransGlobe paid a total of
The Company remains in a strong financial position and is embarking on an exciting period of high potential exploration commencing with drilling at NW Gharib, in parallel with a large 3-D seismic acquisition program on the new concessions.
The Company believes that the same structural configuration that created the pools found in the West Gharib and West Bakr concessions is present in the NW Gharib, SW Gharib and SE Gharib blocks, which will be tested over the next few years. In addition, the Company will continue to pursue business development opportunities both within and outside of
Management and the board of directors remain committed to expanding the Company's portfolio of assets to increase returns to shareholders and mitigate the risks inherent in a concentrated portfolio, particularly political or economic concentration.
Operations and Exploration
The Company drilled two wells during the second quarter resulting in an oil well at
Subsequent to quarter-end, one additional well was drilled at
The well encountered approximately 320 feet of low porosity Thebes and was cased as a potential Thebes oil well and future water injector for the main Hana Markha pool. A portion of the Thebes was cored (87 feet) and is being analyzed prior to designing a completion test. It is expected that the Thebes will be completed and tested in late 2014.
If results from the
Year-to-date the Company has drilled eight wells resulting in seven oil wells and one dry hole (subsequently side tracked) at West Gharib.
The rig is currently drilling a development well at Hana West prior to moving to the new North West Gharib concession for the balance of 2014.
Production from West Gharib averaged 9,987 Bopd to TransGlobe during the second quarter, a 10% (1,113 Bopd) decrease from the previous quarter.
Production to TransGlobe averaged 9,422 Bopd in July.
Production at West Gharib continues to be adversely impacted by a combination of premature failures of new progressive cavity pumps ('PCPs') and increased water cuts associated with natural declines. The manufacturer of the failed PCPs has completed a detailed review of the failed pumps and the manufacturing process for the pumps. Subsequent to the review, the manufacturer has modified its processes and advised the Company that they will provide replacements at no cost to the Company for the forty pumps which were supplied during the past year.
The new pumps are manufactured, with the first batch of 20 pumps arriving in country in late July and in the field in early August following testing by the manufacturer in
In addition, the Company placed a special order for nine replacement pumps from the Company's previous pump supplier which were manufactured and are scheduled to arrive in
Operations and Exploration
The Company drilled three wells in the second quarter resulting in two oil wells (H-field and K-field) and one H-field water injector. The H-field oil well encountered three Yusr zones (A, B & C) and was initially completed in the lower most Yusr C zone which is awaiting additional perforations due to poor inflow. The K-field well was completed in the main Asl A zone and placed on production at an initial rate of 480 Bopd in July.
Subsequent to quarter end, the Company drilled two oil wells (H-field and K-field) which are scheduled for completion during the third quarter.
Year to date the Company has drilled eight wells resulting in seven oil wells and one water injection well at West Bakr. The drilling rig is currently shut down for scheduled maintenance prior to drilling in M-field and is expected to remain working in West Bakr throughout 2014.
Production from West Bakr averaged 5,182 Bopd to TransGlobe during the second quarter, a 10% (575 Bopd) decrease from the previous quarter. Production decreases are primarily attributed to an increase in well servicing and lower production from multi zone new wells. The wells were completed in the deeper formations first (which have lower productivity due to thinner zones and structural proximity to water).
Production averaged 4,946 Bopd in July.
During the second quarter the Company contracted an additional workover rig to conduct an initial 10 well remedial program to re-enter suspended oil wells, evaluate un-swept oil potential, and recomplete/equip wells for production. The first well (H-field) was recompleted and placed on production in late July at an initial rate of 450 Bopd. Concurrently the Company has commenced a program to install larger pump jacks on higher volume producers to optimize well performance.
The first three larger pump jacks were received and installed in late June with an additional three pump jacks installed in July. The initial three wells are producing an additional 180 Bopd (60 Bopd/well) with further optimization planned for August. The remaining fourteen large volume pump jacks are expected to be installed over the balance of 2014.
North West Gharib Block,
Operations and Exploration
In June, the Company mobilized a drilling rig to the first exploration well on the North West Gharib ('NWG') concession (NWG 1) which began drilling on
Subsequent to the quarter two wells were drilled resulting in an oil well at NWG 1 and a suspended well at NWG 2. Oil was discovered at NWG 1 in the Lower Nukhul immediately north of the West Gharib main Arta Lower Nukhul pool. Approximately 33 feet of net oil pay was identified on well logs and the well was cased for completion as a future oil producer.
NWG 2 was unable to reach the target formation due to a combination of swelling shales and lost circulation. The well has been plugged back to the base of surface casing and suspended as a potential future side track candidate. The drilling rig is currently drilling a Nukhul prospect at NWG 3 located approximately two kilometers north east of NWG 2.
In August the Company will move a second drilling rig (currently drilling at West Gharib) to NWG 10, which is targeting a deeper Markha/Rudeis exploration target on the southeast corner of the concession.
Both drilling rigs are currently scheduled to remain in NWG through 2015.
The Company has identified 79 drilling locations based on existing 3-D seismic and geological modeling of the area. Based on current mapping the Company has internally estimated a prospective resource of 71 million barrels on an un-risked deterministic basis for the NWG block. The 2014 drilling program will target up to 58 million barrels of the total 71 million barrels of prospective resource identified to date.
New Exploration Blocks, Eastern & Western Desert (100% working interest, operated)
Based on surface and remote-sensing mapping, the Company believes the same structural configuration that created the pools found in the West Gharib concession is present in the NWG, SW Gharib ('SWG') and SE Gharib ('SEG') blocks.
The historical field size distribution data indicates that the average field size in the broader onshore
The Company has approved and commenced a large (1,000+ square kilometers of 3-D and 300+ kilometers of 2-D) seismic acquisition program for the Eastern Desert to be followed with an additional 400+ square kilometers of 3-D seismic acquisition in the Western Desert (South Ghazalat concession). It is expected the total seismic acquisition program will be completed by the second quarter of 2015 at an estimated cost of
East Ghazalat Block,
Operations and Exploration
The Company participated in one oil well during the second quarter. Year-to-date the Company has participated in three wells resulting in two Safwa oil wells and one dry hole. Drilling commenced on the 14,500 foot North Dabaa 2 appraisal well with results expected in late August. The North Dabaa 1 discovery well tested natural gas/condensate from the Khatatba formation. Following the North Dabaa 2 appraisal well, the rig is scheduled to move to the Safwa development lease to drill the first horizontal development well targeting the Upper Bahariya in the Safwa field.
Production from East Ghazalat averaged 1,573 Bopd (786 Bopd to TransGlobe) during the second quarter, a 352 Bopd (81%) increase to TransGlobe from the previous quarter. Production increases are attributed to the new Safwa producer which effectively doubled field production in mid-March.
The Safwa field production averaged 1,374 Bopd (687 Bopd to TransGlobe) in July.
Operations and Exploration
The Company has not provided guidance for any wells in 2014 due to the prolonged delays in receiving military approvals for new wells primarily in the central portion of the concession which includes the Boraq discovery. The Company has negotiated and received EGPC approval that the final exploration period for approximately 800 square kilometers of the concession (which has been deemed non accessible by the military due to ongoing training and other activities in the area) has been suspended effective
The South Alamein concession was scheduled to reach the end of the final exploration period on
The remaining lands and the South Alamein concession agreement are extended until such time as military access is approved, at which time the Company will have approximately 20 months to complete additional exploration and appraisal in the final exploration phase. All other provisions of the South Alamein concession agreement remain in place. The current South Alamein concession lands include the Boraq discovery and the remaining exploration prospects of interest. The Company continues to actively engage the military to find solutions to obtain access to the remaining concession area.
Operations and Exploration
No wells were drilled during the second quarter.
Sales production from Block 32 averaged 841 Bopd (116 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.
The actual field production during the second quarter averaged 1,133 Bopd (156 Bopd to TransGlobe) which is approximately 17% higher than the previous quarter. Production in 2014 continues to be partially impacted due to pipeline and general service/supply interruptions.
Production from the block averaged 1,594 Bopd (220 Bopd to TransGlobe) during July.
Operations and Exploration
No new wells were drilled during the quarter. The joint venture partners initially approved the Gabdain #3 exploration well in the 2013 budget, subject to the resolution of logistic/security issues in the area which have not been resolved to date. The well is included in the 2014 exploration budget subject to resolution of tribal issues in the area.
Operations and Exploration
No wells were drilled during the second quarter.
Sales production from Block S-1 averaged 1,652 Bopd (413 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 was zero during the second quarter due to an attack on the sales pipeline on
Operations and Exploration
No wells were drilled during the quarter.
Future drilling is suspended pending resolution of logistics and security concerns.
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, the anticipated amount and timing of future dividend payments, the sustainability of future dividend payments, anticipated increases to the Company's reserves and production, 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
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.
The initiation of a quarterly dividend payment program in the second quarter of 2014 is a key component of TransGlobe's objective to create value for its shareholders. The Company believes that it is well positioned to sustain a quarterly dividend payment, and intends to approve and declare regular quarterly dividends on a go-forward basis.
The actual amount of future quarterly dividends will be proposed by management and subject to the approval and discretion of the Board. The Board reviews proposed dividend payments in conjunction with their review of quarterly financial and operating results. Future dividend levels will be dependent upon economic factors including commodity prices, capital expenditure programs and production volumes, and will be evaluated regularly to ensure that dividend payments do not compromise the strong financial position or the growth of the Company.
The quarterly dividend declared on
MANAGEMENT STRATEGY AND OUTLOOK
The 2014 outlook provides information as to management's expectation for results of operations for 2014. Readers are cautioned that the 2014 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'.
Production guidance for 2014 is under review due to prolonged pump issues at West Gharib and continued tribal issues in
Production sales to
It is expected that third quarter production will be in the 15,000 Bopd range. Due to the timing uncertainties to restore production at West Gharib and
Should production remain in the 15,000 Bopd range for the balance of the year, total production for 2014 would average approximately 16,000 Bopd for 2014.
With production at 15,000 Bopd for the balance of the year (16,000 Bopd average for 2014), funds flow from operations would be approximately
Although the Company's capital budget remains at
The 2014 capital program is split 68:32 between development and exploration, respectively. The Company plans to participate in up to 51 wells in 2014. The Company intends to fund it entire 2014 capital budget through the use of working capital and cash generated by operating activities.
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 necessary to fund future growth through capital investment. Funds flow from operations may not be comparable to similar measures used by other companies.
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 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 is a Canadian-based, publicly-traded, oil exploration and production company whose activities are concentrated in two main geographic areas: the
During the second quarter of 2014, TransGlobe
Maintained a strong financial position, reporting a debt-to-funds flow ratio of 0.6 at
Reported net earnings of
Experienced a decrease in oil sales compared to Q1-2014 and Q2-2013 primarily as a result of decreased sales volumes, which was partially offset by increased oil prices;
Achieved funds flow from operations of
Experienced an increase in cash flow from operating activities as compared to Q1-2014, which is mostly due to the reverse termination fee received from Caracal along with higher collections on accounts receivable balances;
Paid a special dividend of
2014 TO 2013 NET EARNINGS VARIANCES
Net earnings increased to
The reverse termination fee received from Caracal in the amount of
The Company's financial results are influenced by fluctuations in commodity prices, including price differentials.
The price of Dated Brent oil averaged 1% higher in Q2-2014 compared with Q1-2014. 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
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
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).
The Company is in continual discussions with the Egyptian Government to improve the delayed cash collections, and expects to recover the accounts receivable balance in full. During the first six months of 2014, the Company collected
The Egyptian government recently implemented higher gasoline, diesel and natural gas prices, effectively reducing the subsidies carried by the government. These price increases are expected to have a material impact on
Given the political sensitivity of the reduction of fuel subsidies, it is extremely encouraging to see the Egyptian Government take decisive action in this regard. The fact that the newly formed government is willing to take actions that may not be popular from a political perspective to improve the Egyptian economy is viewed as very positive by TransGlobe.
In an effort to expand the Company's exploration opportunities in
The netback per Bbl in
Production and operating expenses increased by
The increase in production and operating expenses resulted in a decrease in the amount of royalties and current taxes as a percentage of revenue per Bbl for the three and six months ended
The average selling price during the three months ended
Royalties and taxes as a percentage of revenue decreased to 36% in the three and six months ended
GENERAL AND ADMINISTRATIVE EXPENSES ('G&A')
G&A expenses (net) increased 22% and 9%, respectively, in the three and six months ended
These banking fees were capitalized in their respective concessions, which is the reason for the increased capitalized G&A. Stock-based compensation has increased in both the three and six months periods ended
Finance costs for the three and six months ended
The decrease in this portion of the interest expense is due to foreign exchange fluctuations, as the interest on the convertible debentures is paid in Canadian dollars. The remaining decrease in interest expense is due to a lower utilization of the Company's Borrowing Base Facility thus far in 2014 as compared to 2013.
The Company had no long-term debt outstanding under the Borrowing Base Facility as at
The conversion price of the convertible debentures will adjust for any amounts paid out as dividends on the common shares of the Company, provided that the dividend payment causes the conversion price to change by 1% or more. Interest of 6% is payable semi-annually in arrears on
DEPLETION AND DEPRECIATION ('DD&A')
OUTSTANDING SHARE DATA
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
Funding for the Company's capital expenditures was provided by cash generated by operating activities. The Company expects to fund its 2014 exploration and development program of
Working capital is the amount by which current assets exceed current liabilities. At
The majority of the Company's accounts receivable are due from
To date, the Company has experienced no difficulties with transferring funds abroad.
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 Company is subject to certain office, equipment and drilling rig leases.
Pursuant to the PSC for North West Gharib in
Pursuant to the PSC for South East Gharib in
Pursuant to the PSC for South West Gharib in
Pursuant to the PSC for South Ghazalat in
Pursuant to the PSC for Block 75 in
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
CHANGES IN ACCOUNTING POLICIES
IFRS 10 (revised) 'Consolidated Financial Statements'
IFRS 12 (revised) 'Disclosure of interests in other entities'
IAS 32 (revised) 'Financial Instruments: Presentation'
IFRIC 21 (new) 'Levies'
IFRIC 21 is effective for annual periods beginning on or after
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
Tel: (403) 444-4787
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