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 0.8 times at December 31, 2012 (December 31, 2011 - 0.5). This was 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 years ended December 31, 2012 and 2011:
Sources and Uses of Cash($000s) 2012 2011--------------------------------------------------------------------------------------------------------------------------------------------------------Cash sourced Funds flow from operations(i) 153,498 119,976 Transfer from restricted cash 1,445 1,161 Issue of convertible debentures 97,851 - Exercise of options 3,333 1,946 Issuance of common shares, net of share issuance costs - 71,583 Other 639 772---------------------------------------------------------------------------- 256,766 195,438Cash used Capital expenditures 51,651 70,118 Deferred financing costs 440 - Acquisitions 27,259 73,836 Repayment of long-term debt 41,550 30,000 Finance costs 11,367 3,550 Other 592 315---------------------------------------------------------------------------- 132,859 177,819---------------------------------------------------------------------------- 123,907 17,619Changes in non-cash working capital (84,817) (31,517)----------------------------------------------------------------------------Increase (decrease) in cash and cash equivalents 39,090 (13,898)Cash and cash equivalents - beginning of year 43,884 57,782----------------------------------------------------------------------------Cash and cash equivalents - end of year 82,974 43,884--------------------------------------------------------------------------------------------------------------------------------------------------------(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.
Funding for the Company's capital expenditures was provided by funds flow from operations. The Company funded its 2012 exploration and development program of $51.4 million 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.
