The netback per Bbl in Egypt decreased 11% in 2012 compared with 2011, which is a result of oil prices decreasing by 2% combined with higher royalty and tax rates principally associated with production from West Bakr. In 2012, the average selling price was $13.05/Bbl lower than the average Dated Brent oil price for the year of $111.56/Bbl which is a result of a gravity/quality adjustment as well as a contracted discounted price for West Bakr crude in 2012.
Royalties and taxes as a percentage of revenue increased to 65% in 2012, compared with 62% in 2011. This increase is due to the fact that 2011 included only West Gharib production, whereas 2012 includes West Gharib and West Bakr production. West Bakr production is subject to higher Government take in accordance with the West Bakr PSC and a lower contracted price as compared to West Gharib.
Production and operating expenses on a per Bbl basis remained consistent in 2012 compared with 2011.
Yemen 2012 2011----------------------------------------------------------------------------(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl--------------------------------------------------------------------------------------------------------------------------------------------------------Oil sales 33,456 108.82 57,910 108.60Royalties 12,675 41.23 26,007 48.77Current taxes 3,668 11.93 7,387 13.85Production and operating expenses 9,120 29.66 9,255 17.36----------------------------------------------------------------------------Netback 7,993 26.00 15,261 28.62--------------------------------------------------------------------------------------------------------------------------------------------------------
In Yemen, the Company experienced a 9% netback reduction on a per Bbl basis in 2012 compared with 2011. Operating expenses on a per Bbl basis increased substantially (71%) in 2012 compared to 2011 as a result of production being shut-in on Block S-1 from the beginning of the year until July 27, 2012, and again from November 11, 2012 to the end of the year. While production volumes were down, the Company continued to incur the majority of the operating costs on Block S-1 which significantly increased operating expenses per Bbl.
Partially offsetting the increased operating expenses per Bbl was a decrease of 15% in royalties and taxes on a per Bbl basis. The Block S-1 operating costs incurred during the shut-in period from the beginning of 2012 through to July 27, 2012 accumulated in cost recovery pools, which allowed the Company to achieve full cost recovery in accordance with the PSC during the time that Block S-1 was producing in the year. Cost recovery is paid out through a reduction of Government take, which has resulted in a decrease in royalties and taxes on a per Bbl basis in 2012 compared to 2011.
DERIVATIVE COMMODITY CONTRACTS
TransGlobe uses hedging arrangements from time to time as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs. The hedging program is actively monitored and adjusted as deemed necessary to protect the cash flows from the risk of commodity price exposure.
