CALGARY, ALBERTA--(Marketwired - Aug.
12, 2013) - 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 TransGlobes 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 TransGlobes 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
----------------------------------------------------------------------------CORPORATE SUMMARY
TransGlobe Energy Corporations ("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 Companys 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 Governments 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 Governments 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 months 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 Governments 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 Companys primary objective was obtaining the 655 square kilometer (162,000 acre) North West Gharib concession which surrounds and immediately offsets the Companys 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 companys 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 Governments 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 Governments 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.
MANAGEMENTS DISCUSSION AND ANALYSIS
August 9, 2013
The following discussion and analysis is managements opinion of TransGlobes 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 managements discussion and analysis ("MD&A") for the year ended December 31, 2012 included in the Companys 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 Companys Annual Information Form, is on SEDAR at
www.sedar.com.
The Companys 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, managements assessment of future plans and operations, anticipated increases to the Companys reserves and production, the possible sale of the Companys 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, managements 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 managements expectation for results of operations for 2013.
Readers are cautioned that the 2013 outlook may not be appropriate for other purposes.
The Companys 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 Companys disclosure under "Forward-Looking Statements", outlined on the first page of this MD&A.
2013 Production Outlook
Production Forecast
2012
2013 Guidance Actual % Change
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Barrels of oil per day 19,000 - 20,000 17,496 9 - 14
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----------------------------------------------------------------------------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
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Funds flow from operations 145.0 153.5 (6)
Dated Brent oil price ($ per Bbl) 100.00 111.56 (10)
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2013 Capital Budget
($ millions) 2013 Guidance
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Egypt 75.0
Yemen 5.0
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Total 80.0
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----------------------------------------------------------------------------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 Companys 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 TransGlobes 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
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($000s) 2013 2012 2013 2012
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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
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Funds flow from operations(i) 32,887 35,174 68,892 71,262
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(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 Companys 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 Companys principal business activities prior to the consideration of other income and expenses.
Netback may not be comparable to similar measures used by other companies.
TRANSGLOBES 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
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(000s, except per share, price and
volume amounts) Q-2 Q-1 Q-4 Q-3
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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
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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
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2012 2011
----------------------------------------------------------------------------
(000s, except per share, price and
volume amounts) Q-2 Q-1 Q-4 Q-3
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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
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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
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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.
(ii)Debt-to-funds flow ratio is measure that represents total long-term debt
(including the current portion) plus convertible debentures over funds
flow f 
