TransGlobe Energy Corporation Announces Fourth Quarter and Year End
2013 Financial and Operating Results
CALGARY, ALBERTA--(Marketwired - Mar 5, 2014) - TransGlobe
Energy Corporation ("TransGlobe" or the "Company")
(TSX:TGL)(NASDAQ:TGA) is pleased to announce its financial and
operating results for the three months and year ended December 31,
2013. All dollar values are expressed in United States dollars
unless otherwise stated.
2013
- Production increased to 18,284 barrels of oil per day ("Bopd")
from an average 17,432 Bopd in 2012, a growth rate of 5%;
- Funds flow from operations of $139.1 million ($1.70/share
diluted) based on average Brent oil pricing of $108.64 in
2013;
- Net earnings of $58.5 million ($0.65/share diluted), which
includes $30.1 million in impairment losses;
- Signed four new 100% WI concession agreements in Egypt that
were won in the 2011/2012 EGPC bid round;
- Year-end 2013 Proved plus Probable ("2P") reserves decreased 7%
to 45.3 MMBbl, representing a production replacement for the year
of 48%;
- Three-year weighted average finding and development costs of
$10.02/Bbl (2P) with a recycle ratio of 2.21;
- Three-year weighted average finding, development and
acquisition costs of $10.23/Bbl (2P) with a recycle ratio of
2.17;
- Collected $275.2 million in Egyptian receivables during the
year (including $127.4 million in Q4) reducing the total
receivables outstanding at year end to $148.3 million from $221.0
million in 2012; and
- Ended the year with $122.1 million in cash and cash
equivalents; positive working capital of $242.0 million or $154.4
million net of debt (including convertible debentures).
2014
- Production guidance of 20,000 to 21,000 Bopd, a 12% increase
over 2013 using the mid-point of 20,500 Bopd;
- Funds Flow guidance of $146.0 million, based on an average
Dated Brent oil price of $100.0/Bbl and using the mid-point
production of 20,500 Bopd;
- January production 18,932 Bopd; February production 18,000
Bopd;
- Development lease for North Dabaa gas/condensate discovery
(East Ghazalat) approved February 18, 2014;
- Expect to introduce a quarterly dividend ($0.05/share) in 2014
(subject to lender and regulatory approvals).
A conference call to discuss TransGlobe's 2013 fourth quarter
and year-end results presented in this news release will be held
Wednesday, March 5, 2014 at 9:00 AM Mountain Time (11:00 AM Eastern
Time) and is accessible to all interested parties by dialing
416-340-8527 or toll free at 800-446-4472 (see also TransGlobe's
news release dated February 26, 2014). The webcast may be accessed
at http://www.gowebcasting.com/5235.
|
TransGlobe Energy Corporation's |
| Annual
General and Special Meeting of the Shareholders |
| Thursday,
May 8, 2014 at 3:00 p.m. Mountain Time |
|
Centennial Place West, 3rd Floor, 250 - 5th Street S.W., Calgary,
Alberta, Canada |
|
| FINANCIAL AND OPERATING RESULTS |
|
| (US$000s, except per share, price, volume amounts and
% change) |
|
|
|
|
Three months ended December 31 |
|
Year-ended December 31 |
|
|
2013 |
2012 |
|
% Change |
|
2013 |
2012 |
|
% Change |
|
| Oil revenue |
161,035 |
173,864 |
|
(7 |
) |
635,496 |
633,992 |
|
- |
|
| Oil revenue, net of royalties |
81,196 |
92,281 |
|
(12 |
) |
315,316 |
317,666 |
|
(1 |
) |
| Derivative gain (loss) on commodity contracts |
- |
- |
|
- |
|
- |
(125 |
) |
- |
|
| Production and operating expense |
16,807 |
17,343 |
|
(3 |
) |
65,791 |
52,367 |
|
26 |
|
| General and administrative expense |
7,184 |
7,377 |
|
(3 |
) |
27,569 |
28,206 |
|
(2 |
) |
| Depletion, depreciation and amortization expense |
14,161 |
12,430 |
|
14 |
|
49,414 |
46,946 |
|
5 |
|
| Income taxes |
22,156 |
22,415 |
|
(1 |
) |
85,351 |
88,075 |
|
(3 |
) |
| Funds flow from operations* |
36,743 |
46,839 |
|
(22 |
) |
139,118 |
153,498 |
|
(9 |
) |
|
Basic per share |
0.49 |
0.64 |
|
|
|
1.88 |
2.09 |
|
|
|
|
Diluted per share |
0.49 |
0.57 |
|
|
|
1.70 |
2.03 |
|
|
|
| Net earnings |
6,893 |
34,836 |
|
(80 |
) |
58,512 |
87,734 |
|
(33 |
) |
| Net earnings - diluted |
6,893 |
32,156 |
|
(79 |
) |
53,036 |
87,734 |
|
(40 |
) |
|
Basic per share |
0.09 |
0.48 |
|
|
|
0.79 |
1.20 |
|
|
|
|
Diluted per share |
0.09 |
0.39 |
|
|
|
0.65 |
1.16 |
|
|
|
| Capital expenditures |
69,264 |
20,150 |
|
244 |
|
129,170 |
51,651 |
|
150 |
|
| Corporate acquisitions |
- |
(719 |
) |
- |
|
- |
27,259 |
|
(100 |
) |
| Working capital |
241,969 |
262,217 |
|
(8 |
) |
241,969 |
262,217 |
|
(8 |
) |
| Long-term debt, including current portion |
- |
16,885 |
|
(100 |
) |
- |
16,885 |
|
(100 |
) |
| Convertible debentures |
87,539 |
98,742 |
|
(11 |
) |
87,539 |
98,742 |
|
(11 |
) |
| Common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
Basic (weighted-average) |
74,257 |
73,768 |
|
1 |
|
73,962 |
73,380 |
|
1 |
|
|
Diluted (weighted-average) |
75,751 |
82,210 |
|
(8 |
) |
81,972 |
75,523 |
|
9 |
|
| Total assets |
675,800 |
653,425 |
|
3 |
|
675,800 |
653,425 |
|
3 |
|
| * 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. |
|
| Operating |
|
|
|
|
|
|
|
|
|
|
| Average production volumes (Bopd) |
18,519 |
17,875 |
|
4 |
|
18,284 |
17,432 |
|
5 |
|
| Average sales volumes (Bopd) |
18,213 |
19,148 |
|
(5 |
) |
18,193 |
17,496 |
|
4 |
|
| Average price ($ per Bbl) |
96.10 |
98.69 |
|
(3 |
) |
95.70 |
99.01 |
|
(3 |
) |
| Operating expense ($ per Bbl) |
10.03 |
9.84 |
|
2 |
|
9.91 |
8.18 |
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS UPDATE
ARAB REPUBLIC OF EGYPT
West Gharib, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
Three wells were drilled during the fourth quarter resulting in
one (Hana) oil well, one (Hana) water injector and one (Fadl) dry
well. The Hana oil well encountered oil in 3 zones including a
potential new pool in the deeper Matulla formation, a pool
extension in the Lower Rudeis formation and in the main Hana Markha
formation. The Matulla zone is scheduled to commence production in
early March.
Subsequent to year-end, three additional wells have been drilled
in the Arta area resulting in two Lower Nukhul oil wells and one
well which was plugged back to surface casing and suspended for a
future sidetrack. The first Lower Nukhul oil well was completed and
placed on production at an initial rate of 300 Bopd in late
January.
One drilling rig is currently drilling in the East Arta area of
the West Gharib concession and is scheduled to remain in West
Gharib during the first half of 2014.
Production
Production from West Gharib averaged 11,983 Bopd to TransGlobe
during the fourth quarter, a 2% (294 Bopd) decrease from the
previous quarter.
Production averaged 11,556 Bopd to TransGlobe during January,
10,900 Bopd during February and approximately 11,700 Bopd to-date
in March. February rates were impacted by well servicing issues at
two of the larger West Gharib producers which was further
exacerbated by mechanical issues on the contracted service rig. The
service rig mechanical issues have repaired and it is expected that
the backlog of lower rate producers requiring servicing will be
brought back on production during March.
|
Quarterly West Gharib Production (Bopd) |
2013 |
|
|
Q-4 |
Q-3 |
Q-2 |
Q-1 |
|
Gross production rate |
11,983 |
12,274 |
12,829 |
12,970 |
|
TransGlobe working interest |
11,983 |
12,274 |
12,829 |
12,970 |
|
TransGlobe net (after royalties) |
6,600 |
6,865 |
7,066 |
7,084 |
|
TransGlobe net (after royalties and tax)* |
4,592 |
4,812 |
4,995 |
4,916 |
* Under the terms of the West Gharib Production Sharing
Concession, royalties and taxes are paid out of the Government's
share of production sharing oil.
West Bakr, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
The Company drilled four wells during the fourth quarter
resulting in three oil wells (two in the H-field and one in the
K-field) and one dry hole in the M-field. The K-field well
encountered oil in the Asl A and Asl B zone and was completed in
the B zone at an initial rate of 460 bopd. The first H-field well
encountered three oil zones (Yusr A, B and C) and the second
H-field well encountered two oil zones (Yusr A and B). The wells
were completed in the lower-most zones with initial rates of 160
bopd and 330 bopd respectively.
Subsequent to year-end, the Company has drilled two oil wells in
the K-field. The first well encountered oil in the Asl A, B and E
which was completed in the Asl E and placed on production at an
initial rate of 190 Bopd in late January. The second well
encountered oil in the Asl A, which was completed and placed
production in late February but is still cleaning up.
The rig is currently drilling in H field and it is expected that
it will continue working in West Bakr throughout 2014.
Production
Production from West Bakr averaged 5,521 Bopd to TransGlobe
during the fourth quarter, a 2% (128 Bopd) increase from the
previous quarter.
Production averaged 5,908 Bopd in January, 5,600 Bopd in
February and approximately 6,100 Bopd to-date in March. Production
increases compared to 2013 are attributable to new drilling and
successful well workover activities. February rates were down
compared to January and March due to an increase in well servicing
events.
|
Quarterly West Bakr Production (Bopd) |
2013 |
|
|
Q-4 |
Q-3 |
Q-2 |
Q-1 |
|
Gross production rate |
5,521 |
5,393 |
4,889 |
4,359 |
|
TransGlobe working interest |
5,521 |
5,393 |
4,889 |
4,359 |
|
TransGlobe net (after royalties) |
2,026 |
1,488 |
1,624 |
1,373 |
|
TransGlobe net (after royalties and tax)* |
1,631 |
1,102 |
1,274 |
1,061 |
* Under the terms of the West Bakr Production Sharing
Concession, royalties and taxes are paid out of the Government's
share of production sharing oil.
East Ghazalat Block, Arab Republic of Egypt (50% working
interest)
Operations and Exploration
No wells were drilled during the fourth quarter.
Subsequent to year-end, the Company has drilled two wells
resulting in one oil well at Safwa and one dry hole at East
Ghazalat #3.
The operator filed and received approval for the North Dabaa
development lease which includes 6 development blocks
(approximately 18 square kilometers), effective February 18, 2014.
The Company has approved an exploration/appraisal well offsetting
the North Dabaa gas/condensate discovery (announced November 3,
2013 in the third quarter press release) as part of the 2014
capital budget. The well is planned to commence drilling in the
third quarter subject to rig availability.
Production
Production from East Ghazalat averaged 670 Bopd (335 Bopd to
TransGlobe) during the fourth quarter, a 59% or 248 Bopd (124 Bopd
to TransGlobe) increase from the previous quarter. Production was
restored from two wells early in the fourth quarter which had been
shut in waiting on a service rig since early in the third
quarter.
The Safwa field production averaged 752 Bopd (376 Bopd to
TransGlobe) in January and 718 Bopd (359 Bopd to TransGlobe) in
February.
|
Quarterly East Ghazalat Production (Bopd) |
2013 |
|
|
Q-4 |
Q-3 |
Q-2 |
Q-1 |
|
Gross production rate |
670 |
421 |
786 |
677 |
|
TransGlobe working interest |
335 |
211 |
393 |
338 |
|
TransGlobe net (after royalties) |
168 |
106 |
189 |
170 |
|
TransGlobe net (after royalties and tax)* |
134 |
84 |
149 |
135 |
* Under the terms of the East Ghazalat Production Sharing
concession, royalties and taxes are paid out of the Government's
share of production sharing oil.
South Alamein, Arab Republic of Egypt (100% working interest,
operated)
Operations and Exploration
The Company drilled two exploration wells during the fourth
quarter resulting in two dry holes at Taef and West Manar. Taef #1
reached a total depth of 7,435 feet in November 2013 and was
plugged and abandoned. The well cost approximately $2.1 million
gross to drill and abandon. West Manar #1 was drilled to a total
depth of 7,300 feet during December 2013 before being plugged and
abandoned. Gross well costs were approximately $1.9 million.
The Company has not provided guidance for any wells in 2014 due
to the prolonged delays in receiving military approvals for new
wells. The Company has the financial capacity to increase the 2014
capital program if the necessary approvals can be obtained.
EGPC BID ROUND RESULTS
New Exploration Blocks, Eastern & Western Desert (100%
working interest, operated)
The Company has prepared and submitted an initial 18 wells for
the necessary approvals on the North West Gharib ("NWG") block in
the Eastern Desert. The Company has identified 79 drilling
locations based on existing 3-D seismic and geological modeling of
the area. The Company is targeting the second quarter of 2014 to
commence exploration drilling at NWG. 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.
Based on surface and remote-sensing mapping, the same structural
configuration that created the pools found in the West Gharib
concession is likely 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 Gulf
of Suez (Eastern Desert) area is roughly 20 million barrels per
field of recoverable resource. The Company has identified an
additional 15 areas of interest ("leads") in the NWG block, 4 leads
on the SWG block and 2 leads on the SEG block that will be followed
up and further refined by field mapping and the high-resolution
seismic acquisition program. The Company has approved a large
(1,000+ square kilometers of 3-D and 300+ kilometers of 2-D)
seismic acquisition program for the Eastern Desert in 2014.
In the Western Desert, the South Ghazalat concession will be
covered by an 800 km2 3-D seismic acquisition program during the
initial evaluation. This large block is situated on the western
margin of the prolific Abu Gharadig Basin, immediately west of the
non-operated East Ghazalat block, where a Jurassic gas-condensate
discovery was made and announced late in 2013.
The total seismic program will consist of approximately 1,800
square kilometers of 3-D seismic and 300 kilometers of 2-D seismic.
Subject to approvals and crew availability, the Company's target is
to commence acquisition in the Eastern Desert during second quarter
of 2014. It is expected the full program, providing broad coverage
of the new concessions, will be completed in early 2015.
REPUBLIC OF YEMEN
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
No wells were drilled during the quarter.
Production
Production sales from Block 32 averaged 2,718 Bopd (375 Bopd to
TransGlobe) during the 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 fourth quarter averaged
1,995 Bopd (276 Bopd to TransGlobe) which is approximately 14%
lower than the previous quarter due to pipeline interruptions and
natural declines.
Field production averaged approximately 1,664 Bopd (230 Bopd to
TransGlobe) during January and 308 Bopd (43 Bopd to TransGlobe)
during February. Production from Block 32 was shut in February 9
due to tribal issues which have affected service and supplies for
the field operations. Limited production operations recommenced
February 25th following the partial resumption of services.
|
Quarterly Block 32 Production and Sales (Bopd) |
2013 |
|
|
Q-4 |
Q-3 |
Q-2 |
Q-1 |
|
Gross field production rate |
1,995 |
2,310 |
2,211 |
2,416 |
|
Gross sales production rate |
2,718 |
1,673 |
3,100 |
1,556 |
|
TransGlobe working interest |
375 |
231 |
428 |
215 |
|
TransGlobe net (after royalties) |
283 |
169 |
264 |
210 |
|
TransGlobe net (after royalties and tax)* |
256 |
150 |
211 |
113 |
* Under the terms of the Block 32 PSA, royalties and taxes are
paid out of the Government's share of production sharing oil.
Block 72, Republic of Yemen (20% working interest)
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 has been
included in the 2014 exploration budget subject to resolution of
tribal issues in the area.
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the quarter.
Production
The reported gross sales production rate represents the amount
of oil that was lifted and sold during the quarter. There were no
crude oil liftings 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 averaged 1,624 Bopd during the fourth quarter
(405 Bopd to TransGlobe) and was booked as inventory.
Field production averaged approximately 3,447 Bopd (862 Bopd to
TransGlobe) during January and 4,436 Bopd (1,109 Bopd to
TransGlobe) during February. Block S-1 production was shut in
approximately 11 days in January due to export pipeline
restrictions. It had produced continuously during February until an
export pipeline disruption on February 24 that has resulted in the
field being shut-in. No firm timing for resumption of sales has
been provided but recent disruptions have generally been less than
a week. The operator scheduled a cargo lifting for the first
quarter of 2014 which occurred at the end of February.
|
Quarterly Block S-1 Production and Sales (Bopd) |
2013 |
|
|
Q-4 |
Q-3 |
Q-2 |
Q-1 |
|
Gross field production rate |
1,624 |
- |
- |
- |
|
Gross sales production rate |
- |
- |
- |
108 |
|
TransGlobe working interest |
- |
- |
- |
27 |
|
TransGlobe net (after royalties) |
- |
- |
- |
14 |
|
TransGlobe net (after royalties and tax)* |
- |
- |
- |
10 |
* Under the terms of the Block S-1 PSA, royalties and taxes are
paid out of the Government's share of production sharing oil.
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.
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,
management's assessment of future plans and operations, anticipated
increases to the Company's reserves and production in Egypt and
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, management's
expectation for results of operations for 2014, including expected
2014 average production, funds flow from operations, the 2014
capital program for exploration and development, the timing and
method of financing thereof, the terms of drilling commitments
under the PSCs and the method of funding such drilling commitments,
the Company's beliefs regarding the reserve and production growth
of its assets and the ability to grow with a stable production
base, 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
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, failure to collect the remaining accounts
receivable balance from EGPC, ability to access sufficient capital
from internal and external sources and the risks contained under
"Risk Factors" in the Company's Annual Information Form which is
available on www.sedar.com. 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 and U.S. 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.
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, including disruptions
caused by the ongoing political changes and civil unrest occurring
in the jurisdictions that the Company operates in, 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".
2014 Outlook Highlights
- Production is expected to average between 20,000 Bopd and
21,000 Bopd, a 9% to 15% increase over the 2013 average
production;
- Exploration and development spending is budgeted to be $100
million excluding acquisitions, a 13% increase from 2013 capital
spending (excluding bonus payments on new concessions), to be
funded from funds flow from operations and cash-on-hand; and
- Funds flow from operations is estimated at $146 million,
representing an increase of 5% from 2013, using mid-point
production guidance and an average Dated Brent oil price assumption
of $100.00 per barrel.
2014 Updated Production Outlook
Production for 2014 is expected to average between 20,000 Bopd
and 21,000 Bopd, representing a 9% to 15% increase over the 2013
average production of 18,284 Bopd. The significant variables in
production estimates include the proportion of the year that Block
S-1 in Yemen is on production and development drilling results in
Egypt.
|
Production Forecast |
|
|
|
|
|
2014 Guidance |
2013 Actual |
% Change |
|
Barrels of oil per day |
20,000 - 21,000 |
18,284 |
9 - 15 |
|
|
|
|
|
2014 Updated Funds Flow From Operations Outlook
Funds flow from operations is estimated at $146 million
($1.93/share) based on an annual average Dated Brent oil price of
$100 per barrel and using the mid-point of the production guidance.
Variations in production and commodity prices during 2014 could
significantly change this outlook. An increase or decrease in the
average Dated Brent oil price of $10 per barrel for the year would
result in a corresponding change in anticipated 2014 funds flow by
approximately $15.0 million or $0.20/share.
|
|
|
|
|
|
|
Funds Flow Forecast |
|
|
|
|
|
|
2014 Guidance |
2013 Actual |
% Change |
|
|
Funds flow from operations ($ millions) |
146.0 |
139.0 |
5 |
|
|
Brent oil price ($ per bbl) |
100.00 |
108.64 |
(8 |
) |
|
|
|
|
|
|
2014 Capital Budget |
|
|
($ millions) |
2014 |
|
Egypt |
94.0 |
|
Yemen |
6.0 |
|
Total |
100.0 |
The 2014 capital program is split 68:32 between development and
exploration, respectively. The Company plans to participate in 51
wells (net 45.9 wells) in 2014. It is anticipated that the Company
will fund its 2014 capital budget from funds flow from operations
and working capital.
The board of directors has approved the implementation of a
quarterly dividend policy. Subject to the receipt of all required
approvals of the TSX and our lenders, the board of directors
expects to declare at the end of March 2014 a quarterly dividend of
$0.05 per share payable as soon as possible thereafter. The funding
of the dividend will be provided by cash on hand and funds flow
from operations.
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 TransGlobe's ability to generate the
cash flow necessary to fund future growth through capital
investment. Funds flow from operations does not have any
standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures used by other companies.
Reconciliation of Funds Flow from Operations
|
($000s) |
2013 |
|
2012 |
|
Cash flow from operating activities |
199,508 |
|
93,992 |
|
Changes in non-cash working capital |
(60,390 |
) |
59,506 |
|
Funds flow from operations* |
139,118 |
|
153,498 |
* Funds flow from operations does not include interest or
financing costs. Interest expense is included in financing costs on
the Consolidated Statements of Earnings and Comprehensive Income.
Cash interest paid is reported as a financing activity on the
Consolidated 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 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 does not have any
standardized meaning under IFRS and therefore 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 Company's principal
business activities prior to the consideration of other income and
expenses. Netback does not have any standardized meaning under IFRS
and therefore may not be comparable to similar measures used by
other companies.
Recycle ratio
Recycle ratio is a measure that is used to evaluate the
efficiency of the Company's capital program by comparing the cost
of finding and developing both proved reserves and proved plus
probable reserves with the netback from production. The ratio is
calculated by dividing the netback by the proved and proved plus
probable finding and development cost on a per Bbl basis. Recycle
ratio does not have any standardized meaning under IFRS and
therefore may not be comparable to similar measures used by other
companies.
TRANSGLOBE'S 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 ANNUAL INFORMATION
| ($000s, except per share, price and volume
amounts) |
2013 |
% Change |
|
2012 |
% Change |
|
2011 |
|
|
|
|
|
|
|
|
| Operations |
|
|
|
|
|
|
|
| Average production volumes (Bopd) |
18,284 |
5 |
|
17,432 |
44 |
|
12,132 |
| Average sales volumes (Bopd) |
18,193 |
4 |
|
17,496 |
44 |
|
12,132 |
| Average price ($/Bbl) |
95.70 |
(3 |
) |
99.01 |
(3 |
) |
101.58 |
| Oil sales |
635,496 |
- |
|
633,992 |
41 |
|
449,794 |
| Oil sales, net of royalties |
315,316 |
(1 |
) |
317,666 |
28 |
|
247,754 |
| Cash flow from operating activities |
199,508 |
112 |
|
93,992 |
48 |
|
63,630 |
| Funds flow from operations* |
139,118 |
(9 |
) |
153,498 |
28 |
|
119,976 |
|
-
Basic per share |
1.88 |
|
|
2.09 |
|
|
1.65 |
|
-
Diluted per share** |
1.70 |
|
|
2.03 |
|
|
1.60 |
| Net earnings |
58,512 |
(33 |
) |
87,734 |
8 |
|
81,392 |
| Net earnings - diluted |
53,036 |
(40 |
) |
87,734 |
8 |
|
81,392 |
|
-
Basic per share |
0.79 |
|
|
1.20 |
|
|
1.12 |
|
- Diluted per share |
0.65 |
|
|
1.16 |
|
|
1.09 |
| Total assets |
675,800 |
3 |
|
653,425 |
24 |
|
525,806 |
| Cash and cash equivalents |
122,092 |
47 |
|
82,974 |
89 |
|
43,884 |
| Convertible debentures |
87,539 |
- |
|
98,742 |
- |
|
- |
| Total long-term debt, including current portion |
- |
(100 |
) |
16,885 |
(71 |
) |
57,609 |
| Debt-to-funds flow ratio*** |
0.6 |
|
|
0.8 |
|
|
0.5 |
| Reserves |
|
|
|
|
|
|
|
| Total Proved (MMBbl)**** |
31.6 |
(4 |
) |
32.8 |
16 |
|
28.2 |
| Total Proved plus Probable (MMBbl)**** |
45.3 |
(7 |
) |
48.7 |
10 |
|
44.2 |
| * 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. See "Additional Measures". |
| ** Funds flow from operations per share (diluted) prior
to the dilutive impact of the convertible debentures was $1.84 for
the year ended December 31, 2013 (2012 - $2.03; 2011 - $1.60). |
| *** Debt-to-funds flow ratio is a measure that
represents total long-term debt (including the current portion)
plus convertible debentures over funds flow from operations for the
trailing 12 months, and may not be comparable to measures used by
other companies. See "Additional Measures". |
| **** As determined by the Company's independent
reserves evaluator, DeGolyer and MacNaughton Canada Limited
("DeGolyer") of Calgary, Alberta, in their reports dated January
15, 2014, January 18, 2013 and January 10, 2012 with effective
dates of December 31, 2013, December 31, 2012 and December 31,
2011, respectively. The reports of DeGolyer have been prepared in
accordance with the standards contained in the Canadian Oil and Gas
Evaluation Handbook prepared jointly by The Society of Petroleum
Evaluation Engineers (Calgary Chapter) and the Canadian Institute
of Mining, Metallurgy & Petroleum (Petroleum Society), as
amended from time to time and National Instrument 51-101. |
|
|
|
|
|
|
|
|
In 2013 compared with 2012, TransGlobe:
- Increased total sales volumes by 4%, as a result of a 7%
increase in sales volumes from Egypt offset by a 62% decline in
sales volumes in Yemen;
- Reported net earnings of $58.5 million, which includes a $30.1
million impairment losses on the South Mariut and East Ghazalat
assets;
- Achieved funds flow from operations of $139.1 million, which
represents a decrease of 9% from 2012. The decrease in funds flow
from operations in 2013 is principally due to higher operating
costs in Egypt and in Yemen (Block S-1) which were not recovered
from production during 2013. Also a portion of the Egypt operating
costs were accrued which have not yet been recognized by EGPC into
the cost recovery pools. Once these expenses are included in the
cost recovery pools the EGPC government take will be reduced to
reflect those expenses;
- Collected $275.2 million on accounts receivable due from EGPC,
a 75% increase over 2012, which contributed to an increase in cash
flow from operating activities of 112% in 2013 as compared to
2012;
- Repaid the entire outstanding balance on its borrowing base
facility with a syndicate of banks (the "Borrowing Base Facility")
to reduce the long-term debt balance (excluding convertible
debentures) to nil as at December 31, 2013; and
- Increased the Company's cash and cash equivalent position to
$122.1 million as at December 31, 2013, which represents a 47%
increase from December 31, 2012.
2013 TO 2012 NET EARNINGS VARIANCES
|
$000s |
$ Per Share Diluted |
% Variance |
| 2012 net earnings |
87,734 |
|
1.16 |
|
|
| Cash items |
|
|
|
| Volume variance |
22,706 |
|
0.25 |
|
26 |
|
| Price variance |
(21,202 |
) |
(0.26 |
) |
(24 |
) |
| Royalties |
(3,854 |
) |
(0.05 |
) |
(4 |
) |
| Expenses: |
|
|
|
|
Production and operating |
(13,424 |
) |
(0.16 |
) |
(15 |
) |
|
Cash general and administrative |
1,390 |
|
0.02 |
|
2 |
|
|
Exploration |
232 |
|
- |
|
- |
|
|
Current income taxes |
(248 |
) |
- |
|
- |
|
|
Realized foreign exchange gain (loss) |
110 |
|
- |
|
- |
|
|
Issue costs for convertible debentures |
4,630 |
|
0.06 |
|
5 |
|
|
Interest on long-term debt |
(15 |
) |
- |
|
- |
|
| Other income |
(90 |
) |
- |
|
- |
|
| Total cash items variance |
(9,765 |
) |
(0.14 |
) |
(10 |
) |
| Non-cash items |
|
|
|
| Unrealized derivative gain (loss) |
125 |
|
- |
|
- |
|
| Unrealized foreign exchange gain (loss) |
4,827 |
|
0.06 |
|
6 |
|
| Depletion and depreciation |
(2,468 |
) |
(0.03 |
) |
(3 |
) |
| Unrealized gain (loss) on financial instruments |
5,679 |
|
0.07 |
|
6 |
|
| Impairment loss |
(29,995 |
) |
(0.37 |
) |
(34 |
) |
| Stock-based compensation |
(762 |
) |
(0.01 |
) |
(1 |
) |
| Deferred income taxes |
2,972 |
|
0.04 |
|
3 |
|
| Deferred lease inducement |
9 |
|
- |
|
- |
|
| Amortization of deferred financing costs |
156 |
|
- |
|
- |
|
| Total non-cash items variance |
(19,457 |
) |
(0.24 |
) |
(23 |
) |
| 2013 net earnings |
58,512 |
|
0.78 |
|
(33 |
) |
| Other items affecting diluted earnings per share |
|
|
|
| Convertible debentures |
|
(0.13 |
) |
(11 |
) |
| 2013 net earnings per share - diluted |
|
0.65 |
|
(44 |
) |
|
|
|
|
|
|
Net earnings decreased to $58.5 million in 2013 compared to
$87.7 million in 2012, which was mostly due to impairment losses
booked on the Company's South Mariut and East Ghazalat assets in
2013 in the amount of $30.1 million. The Company's earnings were
impacted positively by increased production volumes, an increased
foreign exchange gain, an unrealized gain recorded on convertible
debentures and decreased finance costs due to the lack of
convertible debenture issue costs in 2013. These positives were
offset by a decrease in realized oil prices, higher royalties and
increased production and operating costs resulting from higher
production volumes.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
|
|
2013 |
2012 |
|
Dated Brent average oil price ($/Bbl) |
108.64 |
111.56 |
|
U.S./Canadian Dollar average exchange rate |
1.0303 |
0.9994 |
The price of Dated Brent oil averaged 3% lower in 2013 compared
with 2012. 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 Egypt, depending on the PSC,
the Contractor's share of excess ranges between 0% and 30%. In
Yemen, under the Production Sharing Agreements, the excess is
treated as production sharing oil. 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 Egypt and 50% to 60%
in Yemen. The balance of the production after maximum cost recovery
is shared with the respective governments (production sharing oil).
In Egypt, depending on the contract, the government receives 70% to
86% of the production sharing oil or profit oil. In Yemen, the
government receives 65% of the production sharing oil or profit
oil. 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).
Egypt has been experiencing significant political changes over
the past three years and while this has had an impact on the
efficient operations of the government in general, business
processes and the Company's operations have generally proceeded as
normal. The Company experienced a substantial improvement in
collections of accounts receivable from the Egyptian Government in
2013, collecting a total of $275.2 million, including $127.4
million in the fourth quarter. Collections on accounts receivable
were 75% higher in 2013 compared to 2012, which reduced the
accounts receivable balance from $221.0 million as at December 31,
2012 to $148.3 million at December 31, 2013. While this improvement
was significant, the Company's accounts receivable at December 31,
2013 were still approximately 6 months past due. The Company is in
continual discussions with the Egyptian Government to determine
solutions to the delayed cash collections, and expects to recover
the accounts receivable balance in full.
In late June of 2013 massive civil protests in Cairo and other
large population centres in Egypt began which ultimately led to the
Egyptian military removing the President from his office on July 3,
2013. Additional protests held by supporters of Mohamed Morsi
continued in Cairo and other major cities in Egypt for several
weeks following his removal from office. Since that time there have
been only very small civil disturbances and demonstrations.
TransGlobe's offices and staff in Cairo and elsewhere were not
materially impacted by these events. In addition, these events have
had no significant impact on the Company's day-to-day operations.
At this time it is not possible for TransGlobe to predict how the
transition to a newly-elected government, which is planned for
2014, will impact the Company in the long-term. However, the
interim government officials appointed and the significant
financial support pledged from neighboring countries are viewed as
positive by TransGlobe.
On October 3, 2013, TransGlobe received written notice from the
Egyptian Government that the four PSCs (100% working interest) that
were won in the 2011/2012 EGPC bid round had been ratified into
law. The new PSCs became effective on November 7, 2013 following
the settlement of signature bonuses and an official signature
ceremony. The Company committed to spending $101.1 million in the
first exploration period (3 years) including signature bonuses of
$40.6 million, the acquisition of new 2D and 3D seismic, and the
drilling of 38 wells. The Company views the timely ratification of
the new PSCs, post the implementation of the new interim
government, as a positive indicator that Egypt's oil and gas
processes are normalizing.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
2013 |
2012 |
| ($000s, except per share, price and volume
amounts) |
Q-4 |
Q-3 |
Q-2 |
|
Q-1 |
Q-4 |
Q-3 |
Q-2 |
Q-1 |
| Average sales volumes (Bopd) |
18,213 |
18,109 |
18,539 |
|
17,909 |
19,148 |
17,124 |
16,978 |
16,720 |
| Average price ($/Bbl) |
96.10 |
97.18 |
90.48 |
|
99.21 |
98.70 |
96.88 |
95.84 |
104.78 |
| Oil sales |
161,035 |
161,900 |
152,646 |
|
159,915 |
173,864 |
152,624 |
148,078 |
159,426 |
| Oil sales, net of royalties |
81,196 |
78,531 |
76,223 |
|
79,366 |
92,281 |
74,540 |
73,633 |
77,212 |
| Cash flow from operating activities |
109,226 |
22,035 |
16,347 |
|
51,900 |
65,250 |
2,368 |
24,603 |
1,771 |
| Funds flow from operations* |
36,743 |
33,483 |
32,887 |
|
36,005 |
46,839 |
35,397 |
35,174 |
36,088 |
| Funds flow from operations per share |
|
|
|
|
|
|
|
|
|
-
Basic |
0.49 |
0.45 |
0.45 |
|
0.49 |
0.63 |
0.49 |
0.48 |
0.49 |
|
-
Diluted |
0.49 |
0.44 |
0.40 |
|
0.44 |
0.57 |
0.47 |
0.43 |
0.48 |
| Net earnings |
6,893 |
16,344 |
10,397 |
|
24,878 |
34,836 |
11,774 |
30,149 |
10,975 |
| Net earnings - diluted |
6,893 |
16,344 |
(183 |
) |
21,427 |
32,156 |
11,774 |
20,821 |
10,975 |
| Net earnings per share |
|
|
|
|
|
|
|
|
|
-
Basic |
0.09 |
0.22 |
0.14 |
|
0.34 |
0.48 |
0.16 |
0.41 |
0.15 |
|
-
Diluted |
0.09 |
0.22 |
- |
|
0.26 |
0.39 |
0.16 |
0.25 |
0.15 |
| Total assets |
675,800 |
723,708 |
670,996 |
|
672,675 |
653,425 |
635,529 |
620,937 |
648,012 |
| Cash and cash equivalents |
122,092 |
128,162 |
101,435 |
|
112,180 |
82,974 |
45,732 |
72,230 |
127,313 |
| Convertible debentures |
87,539 |
85,300 |
81,830 |
|
93,842 |
98,742 |
102,920 |
95,043 |
105,835 |
| Total long-term debt, including current portion |
- |
39,040 |
15,224 |
|
17,097 |
16,885 |
31,878 |
37,855 |
57,910 |
| Debt-to-funds flow ratio** |
0.6 |
0.8 |
0.6 |
|
0.7 |
0.8 |
1.0 |
1.0 |
1.2 |
| * 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. See "Additional Measures". |
| ** Debt-to-funds flow ratio is measure that
represents total long-term debt (including the current portion)
plus convertible debentures over funds flow from operations from
the trailing 12 months and may not be comparable to measures used
by other companies. See "Additional Measures". |
|
During the fourth quarter of 2013, TransGlobe:
- Maintained a strong financial position, reporting a
debt-to-funds flow ratio of 0.6 at December 31, 2013;
- Reported net earnings of $6.9 million, a decrease in net
earnings of $27.9 million from the fourth quarter of 2012
principally due to $10.2 million impairment losses on the Company's
East Ghazalat petroleum properties and an $8.1 million unrealized
loss on convertible debentures ($5.2 million loss unrecognized in
the fourth quarter of 2013, combined with an unrealized gain of
$2.9 million recognized in the fourth quarter of 2012);
- Achieved funds flow from operations of $36.7 million, a
decrease of 22% from Q4-2012 (which included a lifting from Block
S-1) which was principally due to decreased sales volumes and
prices, combined with increased operating costs;
- Experienced a substantial increase in cash flow from operating
activities in Q4-2013 as compared to all other quarters in the
table above. This is primarily due to collections on accounts
receivable from the Egyptian Government in the amount of $127.4
million during Q4-2013;
- Spent $69.3 million on capital programs, including signature
bonuses and fees on the new concessions in the amount of $42.6
million, which have been booked as intangible exploration and
evaluation assets on the Company's Consolidated Balance Sheet.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest before Royalties (Bopd)
Production Volumes
|
|
2013 |
2012 |
|
Egypt |
17,874 |
16,656 |
|
Yemen |
410 |
776 |
|
Total Company |
18,284 |
17,432 |
|
|
|
Sales Volumes
|
|
2013 |
2012 |
|
Egypt |
17,874 |
16,656 |
|
Yemen |
319 |
840 |
|
Total Company |
18,193 |
17,496 |
|
|
|
|
Netback
|
Consolidated |
|
|
|
|
|
|
2013 |
2012 |
|
(000s, except per Bbl amounts) |
$ |
$/Bbl |
$ |
$/Bbl |
|
Oil sales |
635,496 |
95.70 |
633,992 |
99.01 |
|
Royalties |
320,180 |
48.22 |
316,326 |
49.40 |
|
Current taxes |
88,851 |
13.38 |
88,603 |
13.84 |
|
Production and operating expenses |
65,791 |
9.91 |
52,367 |
8.18 |
|
Netback |
160,674 |
24.19 |
176,696 |
27.59 |
|
|
|
|
|
|
Egypt |
|
|
|
|
|
|
2013 |
2012 |
|
(000s, except per Bbl amounts) |
$ |
$/Bbl |
$ |
$/Bbl |
|
Oil sales |
622,790 |
95.46 |
600,536 |
98.51 |
|
Royalties |
316,211 |
48.47 |
303,651 |
49.81 |
|
Current taxes |
87,583 |
13.42 |
84,935 |
13.93 |
|
Production and operating expenses |
58,215 |
8.92 |
43,247 |
7.09 |
|
Netback |
160,781 |
24.65 |
168,703 |
27.68 |
|
|
|
|
|
|
The netback per Bbl in Egypt decreased 11% in 2013 compared with
2012, which is a result of oil prices decreasing by 3% combined
with higher production and operating expenses, which were $7.4
million higher as at December 31, 2013 as compared to December 31,
2012. The increased operating expenses were principally due to
increased handling fees and increased staffing costs. In addition,
a large portion of the increased operating expenses where accrued
and cannot be used to increase the cost oil allocated to the
Company until paid in cash. Therefore, the Company did not
experience a corresponding decrease in royalties and taxes on a per
Bbl basis as a result of the increased production and operating
costs per Bbl in 2013. Furthermore, a portion of the decrease to
netback per bbl is due to a larger percentage of Egypt production
coming from West Bakr in 2013 as compared to 2012. Due to terms of
the West Bakr PSC, the netback per Bbl at West Bakr is lower than
the netback per Bbl at West Gharib.
The average selling price in 2013 was $95.46/Bbl, which
represents a gravity/quality adjustment of approximately $13.18/Bbl
to the average Dated Brent oil price for the year of $108.64/Bbl.
Royalties and taxes as a percentage of revenue were 65% in 2012,
and remained consistent at this percentage in 2013.
|
Yemen |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
(000s, except per Bbl amounts) |
$ |
$/Bbl |
|
$ |
$/Bbl |
|
Oil sales |
12,706 |
|
109.13 |
|
33,456 |
108.82 |
|
Royalties |
3,969 |
|
34.09 |
|
12,675 |
41.23 |
|
Current taxes |
1,268 |
|
10.89 |
|
3,668 |
11.93 |
|
Production and operating expenses |
7,576 |
|
65.07 |
|
9,120 |
29.66 |
|
Netback |
(107 |
) |
(0.92 |
) |
7,993 |
26.00 |
|
|
|
|
|
|
|
In Yemen, the Company experienced a negative netback per Bbl of
$0.92 in 2013. Production and operating expenses on a per Bbl basis
were elevated in 2013 as a result of production being shut-in on
Block S-1 for the majority of the year. While production volumes
were down, the Company continued to incur the majority of the
production and operating costs on Block S-1 which significantly
increased production and operating expenses per Bbl. Block S-1
production and operating expenses contributed $28.11/Bbl to the
production and operating expenses per Bbl in the table above for
the year ended December 31, 2013. After being shut-in for several
months, when production resumed on Block S-1 in July 2012 and again
in November 2012 all operating expenses accumulated during the
shut-in period were recovered through cost oil within the first two
months of production. Similarly, it is expected that the Block S-1
production and operating costs incurred while shut-in during 2013
will be recovered from cost oil when production and sales resume.
Aside from a 2012 adjustment that was recorded in the first quarter
of 2013, the Company did not record any oil sales from Block S-1 in
the year, even though production resumed in November 2013.
Royalties and taxes as a percentage of revenue decreased to 41%
in the year ended December 31, 2013, compared with 49% in 2012.
GENERAL AND ADMINISTRATIVE EXPENSES
("G&A")
|
|
2013 |
2012 |
|
|
(000s, except per Bbl amounts) |
$ |
|
$/Bbl |
$ |
|
$/Bbl |
|
|
G&A (gross) |
27,257 |
|
4.10 |
|
27,545 |
|
4.30 |
|
|
Stock-based compensation |
5,264 |
|
0.79 |
|
4,502 |
|
0.70 |
|
|
Capitalized G&A and overhead recoveries |
(4,952 |
) |
(0.75 |
) |
(3,841 |
) |
(0.60 |
) |
|
G&A (net) |
27,569 |
|
4.14 |
|
28,206 |
|
4.40 |
|
|
|
|
|
|
|
|
|
|
G&A expenses (net) incurred in 2013 remained relatively
consistent with G&A spending in 2012. On a per Bbl basis, the
6% decrease is mainly the result of increased sales volumes in
2013.
The increase in stock-based compensation is mostly due to an
increase in the total value of new options granted during 2013 as
compared to those granted during 2012.
FINANCE COSTS
Finance costs for the year ended December 31, 2013 decreased to
$9.1 million compared with $13.9 million in 2012. Finance costs
include interest on long-term debt and convertible debentures,
issue costs on convertible debentures and amortization of
transaction costs associated with long-term debt. The decrease in
finance costs is primarily due to the absence of issue costs on
convertible debentures in 2013, for which $4.6 million was spent in
2012.
|
(000s) |
2013 |
2012 |
|
Interest expense |
$ |
8,021 |
$ |
8,006 |
|
Issue costs for convertible debentures |
|
- |
|
4,630 |
|
Amortization of deferred financing costs |
|
1,109 |
|
1,265 |
|
Finance costs |
$ |
9,130 |
$ |
13,901 |
The Company had no long-term debt outstanding under the
Borrowing Base Facility as at December 31, 2013 (December 31, 2012
- $18.5 million). On June 11, 2013, the Company finalized an
amendment to the Borrowing Base Facility, which re-established the
borrowing base at $100.0 million and extended the term of the
facility to December 31, 2017. The Borrowing Base Facility bears
interest at LIBOR plus an applicable margin that varies from 5.0%
to 5.5% depending on the amount drawn under the facility.
In February 2012, the Company sold, on a bought-deal basis,
C$97.8 million ($97.9 million) aggregate principal amount of
convertible unsecured subordinated debentures with a maturity date
of March 31, 2017. Transaction costs of $4.6 million relating to
the issuance of the convertible debentures were expensed in the
year ended December 31, 2012. The debentures are convertible at any
time and from time to time into common shares of the Company at a
price of C$15.10 per common share. The debentures are not
redeemable by the Company on or before March 31, 2015 other than in
limited circumstances in connection with a change of control of
TransGlobe. After March 31, 2015 and prior to March 31, 2017, the
debentures may be redeemed by the Company at a redemption price
equal to the principal amount plus accrued and unpaid interest,
provided that the weighted-average trading price of the common
shares for the 20 consecutive trading days ending five trading days
prior to the date on which notice of redemption is provided is not
less than 125 percent of the conversion price (or C$18.88 per
common share). Interest of 6% is payable semi-annually in arrears
on March 31 and September 30. At maturity or redemption, the
Company has the option to settle all or any portion of principal
obligations by delivering to the debenture holders sufficient
common shares to satisfy these obligations.
DEPLETION AND DEPRECIATION ("DD&A")
|
|
2013 |
2012 |
|
(000s, except per Bbl amounts) |
$ |
$/Bbl |
$ |
$/Bbl |
|
Egypt |
47,659 |
7.31 |
44,442 |
7.29 |
|
Yemen |
1,347 |
11.57 |
2,095 |
6.81 |
|
Corporate |
408 |
- |
409 |
- |
|
|
49,414 |
7.44 |
46,946 |
7.33 |
|
|
|
|
|
In Egypt, DD&A remained consistent on a per Bbl basis in the
year ended December 31, 2013 compared to 2012. In Yemen, DD&A
increased 70% on a per Bbl basis in the year ended December 31,
2013 compared to 2012. This increase is mostly due to a smaller
reserve base over which capital costs are being depleted and
increased future development costs in 2013 as compared to 2012.
IMPAIRMENT OF EXPLORATION AND EVALUATION ASSETS AND PETROLEUM
PROPERTIES
On the South Mariut block, the Company drilled two exploration
wells during the first quarter of 2013 and one exploration well
during the second quarter of 2013, all of which were dry and
subsequently plugged and abandoned. The Company and its joint
interest partner fulfilled their commitments under the terms of the
South Mariut Concession Agreement, and elected not to commit to the
second and final two-year extension period and subsequently
relinquished the block. Because the Company and its partners have
no plans for further exploration in the South Mariut block, the
Company recorded an impairment loss on the South Mariut exploration
and evaluation assets in the amount of $19.9 million in 2013. The
impairment relates to all intangible exploration and evaluation
asset costs, including the costs of acquisition that had been
carried at South Mariut.
The Company recorded an impairment loss in the amount of $10.2
million on its East Ghazalat petroleum properties during the year
ended December 31, 2013. The Company experienced a decrease in the
net present value of its East Ghazalat oil reserves in the Safwa
development lease as at December 31, 2013 as compared to December
31, 2012, causing the recoverable amount to decrease to a level
below the carrying value of the East Ghazalat assets as at December
31, 2013. The impairment loss was recorded to reduce the carrying
value of the East Ghazalat assets to their recoverable amount.
CAPITAL EXPENDITURES
|
($000s) |
2013 |
2012 |
|
Egypt |
125,004 |
50,220 |
|
Yemen |
3,740 |
1,239 |
|
Acquisitions |
- |
27,259 |
|
Corporate |
426 |
192 |
|
Total |
129,170 |
78,910 |
In Egypt, total capital expenditures in 2013 were $125.0 million
(2012 - $50.2 million). During 2013, the Company drilled 18 wells
at West Gharib, 16 wells at West Bakr, four wells at East Ghazalat,
three wells at South Mariut and two wells at South Alamein. Of the
43 wells drilled in Egypt, 33 wells were oil wells, 1 was a
gas/condensate well and nine were dry holes, resulting in a 79%
success rate. In addition, the Company acquired four new PSCs in
Egypt (signed in November 2013) for a cost of $42.6 million. In
2012, the Company entered into two share purchase agreements
whereby the Company acquired certain interests in South Alamein PSC
and South Mariut PSC for Egypt in aggregate cash consideration of
approximately $27.3 million.
At Block 32 in Yemen, the Company drilled one development oil
well at Godah and one exploration well at Salsala (oil) during
2013.
In 2012, the Company entered into two share purchase agreements
whereby the Company acquired certain interests in the South Alamein
PSC and South Mariut PSC in Egypt for aggregate cash consideration
of approximately $27.3 million.
FINDING AND DEVELOPMENT COSTS/FINDING, DEVELOPMENT AND NET
ACQUISITION COSTS
National Instrument 51-101, Standards of Disclosure for Oil and
Gas Activities ("NI 51-101"), specifies how finding and development
("F&D") costs should be calculated. NI 51-101 requires that
exploration and development costs incurred in the year along with
the change in estimated future development costs be aggregated and
then divided by the applicable reserve additions. The calculation
specifically excludes the effects of acquisitions and dispositions
on both reserves and costs. TransGlobe believes that the provisions
of NI 51-101 do not fully reflect TransGlobe's on-going reserve
replacement costs. Since acquisitions can have a significant impact
on TransGlobe's annual reserves replacement cost, to not include
these amounts could result in an inaccurate portrayal of
TransGlobe's cost structure. Accordingly, TransGlobe has also
reported finding, development and acquisition ("FD&A") costs
that will incorporate acquisitions, net of any dispositions during
the year.
| Proved |
|
|
|
|
|
($000s, except volumes and $/Bbl amounts) |
2013 |
2012 |
|
2011 |
|
|
Total capital expenditure |
86,570 |
51,651 |
|
70,119 |
|
|
Acquisitions * |
42,600 |
27,305 |
|
39,497 |
|
|
Dispositions |
- |
- |
|
- |
|
|
Net change from previous year's future capital |
33,027 |
(4,706 |
) |
(6,165 |
) |
|
|
162,197 |
74,250 |
|
103,451 |
|
|
Reserve additions and revisions (MBbl) |
|
|
|
|
|
|
Exploration and development |
5,542 |
10,999 |
|
4,672 |
|
|
Acquisitions, net of dispositions |
- |
- |
|
7,448 |
|
|
Total reserve additions (MBbl) |
5,542 |
10,999 |
|
12,120 |
|
|
Average cost per Bbl |
|
|
|
|
|
|
|
F&D |
21.58 |
4.27 |
|
13.45 |
|
|
|
FD&A |
29.27 |
6.75 |
|
8.54 |
|
|
Three-year weighted average cost per Bbl |
|
|
|
|
|
|
|
F&D |
10.81 |
8.77 |
|
8.76 |
|
|
|
FD&A |
11.86 |
8.86 |
|
7.85 |
|
|
|
* The 2013 Acquisitions figure consists entirely of
acquisition costs on the four new concession agreements that were
awarded to the Company in the 2011/2012 EGPC bid round and ratified
into law in 2013. For the purpose of the FD&A cost per Bbl
calculation, the costs have been treated as land acquisition
costs. |
|
|
|
Note: The aggregate of the exploration and development
costs incurred in the most recent financial year and the change
during that year in estimated future development costs generally
will not reflect total finding and development costs related to
reserves additions for that year. |
|
|
|
| Proved Plus Probable |
|
|
|
|
|
($000s, except volumes and $/Bbl amounts) |
2013 |
2012 |
2011 |
|
|
Total capital expenditure |
86,570 |
51,651 |
70,119 |
|
|
Acquisitions * |
42,600 |
27,305 |
39,497 |
|
|
Dispositions |
- |
- |
- |
|
|
Net change from previous year's future capital |
25,876 |
1,191 |
(14,256 |
) |
|
|
155,046 |
80,147 |
95,360 |
|
|
Reserve additions and revisions (MBbl) |
|
|
|
|
|
Exploration and development |
3,233 |
10,888 |
6,612 |
|
|
Acquisitions, net of dispositions |
- |
- |
11,586 |
|
|
Total reserve additions (MBbl) |
3,233 |
10,888 |
18,198 |
|
|
Average cost per Bbl |
|
|
|
|
|
|
F&D |
34.78 |
4.46 |
7.07 |
|
|
|
FD&A |
47.96 |
7.36 |
5.24 |
|
|
Three-year weighted average cost per Bbl |
|
|
|
|
|
|
F&D |
10.02 |
7.42 |
8.04 |
|
|
|
FD&A |
10.23 |
7.27 |
6.79 |
|
|
|
* The 2013 Acquisitions figure consists entirely of
acquisition costs on the four new concession agreements that were
awarded to the Company in the 2011/2012 EGPC bid round and ratified
into law in 2013. For the purpose of the FD&A cost per Bbl
calculation, the costs have been treated as land acquisition
costs. |
|
|
|
Note: The aggregate of the exploration and development
costs incurred in the most recent financial year and the change
during that year in estimated future development costs generally
will not reflect total finding and development costs related to
reserves additions for that year. |
|
|
|
|
|
|
RECYCLE RATIO
|
Proved |
Three-Year Weighted Average |
2013 |
2012 |
2011 |
|
Netback ($/Bbl)* |
22.20 |
19.64 |
22.08 |
26.24 |
|
Proved F&D costs ($/Bbl) |
10.81 |
21.58 |
4.27 |
13.45 |
|
Proved FD&A costs ($/Bbl) |
11.86 |
29.27 |
6.75 |
8.54 |
|
F&D Recycle ratio |
2.05 |
0.91 |
5.17 |
1.95 |
|
FD&A Recycle ratio |
1.87 |
0.67 |
3.27 |
3.07 |
| * Netback, for the purposes of calculating the recycle
ratio, is defined as net sales less operating, exploration, G&A
(excluding non-cash items), foreign exchange (gain) loss, interest
and current income tax expense per Bbl of production. |
|
|
Proved Plus Probable |
Three-Year Weighted Average |
2013 |
2012 |
2011 |
|
Netback ($/Bbl)* |
22.20 |
19.64 |
22.08 |
26.24 |
|
Proved plus Probable F&D costs ($/Bbl) |
10.02 |
34.78 |
4.46 |
7.07 |
|
Proved plus Probable FD&A costs ($/Bbl) |
10.23 |
47.96 |
7.36 |
5.24 |
|
F&D Recycle ratio |
2.21 |
0.56 |
4.95 |
3.71 |
|
FD&A Recycle ratio |
2.17 |
0.41 |
3.00 |
5.01 |
| * Netback, for the purposes of calculating the recycle
ratio, is defined as net sales less operating, exploration, G&A
(excluding non-cash items), realized foreign exchange (gain) loss,
cash finance costs and current income tax expense per Bbl of
production. |
|
|
|
|
|
|
The recycle ratio variances between 2013 and 2012 are driven
primarily by increases in F&D and FD&A costs on a per Bbl
basis, combined with a reduction in netback per Bbl. F&D costs
per Bbl have increased substantially in 2013 as compared to the
previous two years primarily due to lower new reserve additions at
West Gharib and a negative revision at East Ghazalat. The majority
of the $31.7 million of capital expenditures spent at West Gharib
during 2013 were included in future development capital at year-end
2012 resulting in a minimal new reserve additions of 0.8 MMBbl on a
proved reserves ("1P") basis which did not replace the 4.6 MMBbls
of reserves produced in 2013. At West Bakr, 4.9 MMBbl of new
reserves were added on a 1P basis on capital expenditures of $29.6
million, which more than replaced the 1.8 MMBbls of reserves
produced in 2013. FD&A costs per Bbl were substantially higher
than F&D costs per Bbl in 2013 as a result of the acquisition
costs in the amount of $42.6 million on the four new concessions in
Egypt. No reserves are attributed to the four new concessions.
Due to the nature of international projects, the Company
considers the three-year weighted average recycle ratios to provide
a more useful measure of the Company's ability to successfully add
reserves on an economic basis. The three-year weighted average
ratios are consistent with Company expectations and with prior
periods.
The recycle ratio measures the efficiency of TransGlobe's
capital program by comparing the cost of finding and developing
both proved reserves and proved plus probable reserves with the
netback from production. The ratio is calculated by dividing the
netback by the proved and proved plus probable finding and
development cost on a per Bbl basis.
| Recycle Netback Calculation |
|
|
|
|
|
|
| ($000s, except volumes and per Bbl amounts) |
2013 |
|
2012 |
|
2011 |
|
| Net earnings |
58,512 |
|
87,734 |
|
81,392 |
|
| Adjustments for non-cash items: |
|
|
|
|
|
|
|
Depletion, depreciation and amortization |
49,414 |
|
46,946 |
|
35,081 |
|
|
Stock-based compensation |
5,264 |
|
4,502 |
|
3,062 |
|
|
Deferred income taxes |
(3,500 |
) |
(528 |
) |
(4,445 |
) |
|
Amortization of deferred financing costs |
1,109 |
|
1,265 |
|
1,189 |
|
|
Amortization of deferred lease inducement |
449 |
|
458 |
|
350 |
|
|
Unrealized (gain) loss on commodity contracts |
- |
|
125 |
|
177 |
|
|
Unrealized foreign exchange (gain) loss |
(4,968 |
) |
(141 |
) |
416 |
|
|
Unrealized (gain) loss on financial instruments |
(5,254 |
) |
425 |
|
- |
|
|
Impairment loss |
30,071 |
|
76 |
|
12,147 |
|
|
Gain on acquisition |
- |
|
- |
|
(13,187 |
) |
| Recycle netback* |
131,097 |
|
140,862 |
|
116,182 |
|
| Sales volumes (MBbl) |
6,674 |
|
6,380 |
|
4,428 |
|
| Recycle netback per Bbl* |
19.64 |
|
22.08 |
|
26.24 |
|
|
* Netback, for the purposes of calculating the recycle
ratio, is defined as net sales less operating, exploration, G&A
(excluding non-cash items), foreign exchange (gain) loss, interest
and current income tax expense per Bbl of production. |
|
|
|
|
|
|
|
|
OUTSTANDING SHARE DATA
As at December 31, 2013, the Company had 74,599,394 common
shares issued and outstanding and 5,870,865 stock options issued
and outstanding, which are exercisable in accordance with their
terms into a maximum of 5,870,865 common shares of the Company.
As at March 3, 2014, the Company had 74,284,394 common shares
issued and outstanding and 5,787,267 stock options issued and
outstanding, which are exercisable in accordance with their terms
into a maximum of 5,787,267 common shares of the Company.
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 December 31, 2013
(December 31, 2012 - 0.8 times). 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, 2013 and 2012:
| Sources and Uses of Cash |
|
|
| ($000s) |
2013 |
2012 |
| Cash sourced |
|
|
|
Funds flow from operations* |
139,118 |
|
153,498 |
|
|
Transfer from restricted cash |
- |
|
1,445 |
|
|
Increase in long-term debt |
23,550 |
|
- |
|
|
Issue of convertible debentures |
- |
|
97,851 |
|
|
Exercise of options |
1,301 |
|
3,333 |
|
|
Other |
- |
|
639 |
|
|
163,969 |
|
256,766 |
|
| Cash used |
|
|
|
Capital expenditures |
129,170 |
|
51,651 |
|
|
Deferred financing costs |
2,221 |
|
440 |
|
|
Transfer to restricted cash |
764 |
|
- |
|
|
Acquisitions |
- |
|
27,259 |
|
|
Repayment of long-term debt |
42,000 |
|
41,550 |
|
|
Finance costs |
7,277 |
|
11,367 |
|
|
Other |
1,788 |
|
592 |
|
|
183,220 |
|
132,859 |
|
|
(19,251 |
) |
123,907 |
|
| Changes in non-cash working capital |
58,369 |
|
(84,817 |
) |
| Increase (decrease) in cash and cash equivalents |
39,118 |
|
39,090 |
|
| Cash and cash equivalents - beginning of year |
82,974 |
|
43,884 |
|
| Cash and cash equivalents - end of year |
122,092 |
|
82,974 |
|
|
* 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 2013 exploration
and development and acquisition program of $129.2 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.
Working capital is the amount by which current assets exceed
current liabilities. At December 31, 2013, the Company had working
capital of $242.0 million (December 31, 2012 - $262.2 million). The
decrease to working capital in 2013 is due to a significant
decrease in accounts receivable in the amount of $72.7 million,
which was partially offset by a $39.1 million increase in cash and
cash equivalents and a $10.2 million decrease in accounts payable.
The majority of the Company's accounts receivable are due from
EGPC, and the continued political changes in the country have
increased EGPC's credit risk, which has in turn increased the
Company's credit risk. The Company is in continual discussions with
EGPC and the Egyptian Government to determine solutions to the
delayed cash collections, and expects to recover the entire
accounts receivable balance in full. The Company collected a total
of $275.2 million in 2013, representing a 75% increase over 2012
collections.
To date, the Company has experienced no difficulties with
transferring funds abroad (see "Risks").
At December 31, 2013, TransGlobe had $100.0 million available
under the Borrowing Base Facility of which no amounts were
drawn.
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 principal
commitments of the Company are as follows:
|
($000s) |
|
Payment Due by Period (1)(2) |
|
|
Recognized in Financial Statements |
Contractual Cash Flows |
Less than 1 year |
1-3 years |
4-5 years |
More than 5 years |
|
Accounts payable and accrued liabilities |
Yes - Liability |
38,392 |
38,392 |
- |
- |
- |
|
Convertible debentures |
Yes - Liability |
87,539 |
- |
- |
87,539 |
- |
|
Office and equipment leases (3) |
No |
15,296 |
8,986 |
3,030 |
2,006 |
1,274 |
|
Minimum work commitments (4) |
No |
61,250 |
750 |
60,500 |
- |
- |
|
Total |
|
202,477 |
48,128 |
63,530 |
89,545 |
1,274 |
| (1) Payments exclude ongoing operating costs, finance
costs and payments made to settle derivatives. |
| (2) Payments denominated in foreign currencies have
been translated at December 31, 2013 exchange rates. |
| (3) Office and equipment leases include all drilling
rig contracts. |
| (4) Minimum work commitments include contracts awarded
for capital projects and those commitments related to exploration
and drilling obligations. |
|
Pursuant to the PSC for North West Gharib in Egypt, the Company
has a minimum financial commitment of $35.0 million and a work
commitment for 30 wells and 200 square kilometers of 3-D seismic
during the initial three-year exploration period, which commenced
on November 7, 2013.
Pursuant to the PSC for South East Gharib in Egypt, the Company
has a minimum financial commitment of $7.5 million and a work
commitment for two wells, 200 square kilometers of 3-D seismic and
300 square kilometers of 2-D seismic during the initial three- year
exploration period, which commenced on November 7, 2013.
Pursuant to the PSC for South West Gharib in Egypt, the Company
has a minimum financial commitment of $10.0 million and a work
commitment for four wells and 200 square kilometers of 3-D seismic
during the initial three-year exploration period, which commenced
on November 7, 2013.
Pursuant to the PSC for South Ghazalat in Egypt, the Company has
a minimum financial commitment of $8.0 million and a work
commitment for two wells and 400 square kilometers of 3-D seismic
during the initial three-year exploration period, which commenced
on November 7, 2013.
Pursuant to the PSC for Block 75 in Yemen, the Contractor (Joint
Interest Partners) has a remaining minimum financial commitment of
$3.0 million ($0.8 million to TransGlobe) for one exploration well
in the first exploration period, which has been extended to March
9, 2015.
Pursuant to the August 18, 2008 asset purchase agreement for a
25% financial interest in eight development leases on the West
Gharib concession in Egypt, the Company has committed to paying the
vendor a success fee to a maximum of $2.0 million if incremental
reserve thresholds are reached in the South Rahmi development
lease, to be evaluated annually. Based on the Company's annual
Reserve Report prepared by DeGolyer effective December 31, 2013, no
additional fees are due in 2014.
In the normal course of its operations, the Company may be
subject to litigations 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 December 31, 2013.
OFF BALANCE SHEET ARRANGEMENTS
The Company has certain lease arrangements, all of which are
reflected in the Commitments and Contingencies table, which were
entered into in the normal course of operations. All leases have
been treated as operating leases whereby the lease payments are
included in operating expenses or G&A expenses depending on the
nature of the lease. No asset or liability value has been assigned
to these leases in the Consolidated Balance Sheet as of December
31, 2013.
RISKS
TransGlobe's results are affected by a variety of business risks
and uncertainties in the international petroleum industry including
but not limited to:
- Financial risks including market risks (such as commodity
price, foreign exchange and interest rates), credit risks and
liquidity risks;
- Operational risks including capital, operating and reserves
replacement risks;
- Safety, environmental and regulatory risks; and
- Political risks.
Many of these risks are not within the control of management,
but the Company has adopted several strategies to reduce and
minimize the effects of these risks:
Financial Risk
Financial risk is the risk of loss or lost opportunity resulting
from financial management and market conditions that could have a
positive or negative impact on TransGlobe.
The Company actively manages its cash position and maintains
credit facilities to ensure it has sufficient available funds to
meet current and foreseeable financial requirements at a reasonable
cost. Management believes that future funds flows from operations,
working capital and availability under existing banking
arrangements will be adequate to support these financial
liabilities, as well as its capital programs.
The ongoing political changes in Egypt and Yemen could present
challenges to the Company if the issues persist over an extended
period of time. Continued instability could reduce the Company's
ability to access debt, capital and banking markets. To mitigate
potential financial risk factors, the Company maintains a very
strong liquidity position and management regularly evaluates
operational and financial risk strategies and continues to monitor
the 2014 capital budget and the Company's long-term plans. The
Company has designed its 2014 budget to be flexible, allowing
spending to be adjusted for any unforeseen events and changes in
commodity prices.
Market Risk
Market risk is the risk or uncertainty arising from possible
market price movements and their impact on the future performance
of a business. The market price movements that the Company is
exposed to include oil prices (commodity price risk), foreign
currency exchange rates and interest rates, all of which could
adversely affect the value of the Company's financial assets,
liabilities and financial results.
Commodity price risk
The Company's operational results and financial condition are
dependent on the commodity prices received for its oil
production.
Any movement in commodity prices would have an effect on the
Company's financial condition which could result in the delay or
cancellation of drilling, development or construction programs, all
of which could have a material adverse impact on the Company.
Therefore, the Company uses financial derivative contracts from
time to time as deemed necessary to manage fluctuations in
commodity prices in the normal course of operations. The use of
derivative instruments is governed under formal policies and is
subject to limits established by the Board of Directors.
Foreign currency exchange risk
As the Company's business is conducted primarily in U.S. dollars
and its financial instruments are primarily denominated in U.S.
dollars, the Company's exposure to foreign currency exchange risk
relates to certain cash and cash equivalents, convertible
debentures, accounts payable and accrued liabilities denominated in
Canadian dollars and Egyptian pounds. When assessing the potential
impact of foreign currency exchange risk, the Company believes 10%
volatility is a reasonable measure. The Company estimates that a
10% increase in the value of the Canadian dollar against the U.S.
dollar would result in a decrease in the net earnings for the year
ended December 31, 2013 of approximately $9.5 million and
conversely a 10% decrease in the value of the Canadian dollar
against the U.S. dollar would increase net earnings by $7.8 million
for the same period. The Company does not currently utilize
derivative instruments to manage this risk.
The Company is also exposed to foreign currency exchange risk on
cash balances denominated in Egyptian pounds. Some collections of
accounts receivable from the Egyptian Government are received in
Egyptian pounds, and while the Company is generally able to spend
the Egyptian pounds received on accounts payable denominated in
Egyptian pounds on an expedited basis, there remains foreign
currency exchange risk exposure on Egyptian pound cash balances.
Using month-end cash balances converted at month-end foreign
exchange rates, the average Egyptian pound cash balance for 2013
was $6.6 million (2012 - $3.7 million) in equivalent U.S. dollars.
The Company estimates that a 10% increase in the value of the
Egyptian pound against the U.S. dollar would result in an increase
in the net earnings for the year ended December 31, 2013 of
approximately $0.7 million and conversely a 10% decrease in the
value of the Egyptian pound against the U.S. dollar would decrease
net earnings by $0.6 million for the same period. The Company does
not currently utilize derivative instruments to manage this
risk.
Interest rate risk
Fluctuations in interest rates could result in a change in the
amount the Company pays to service variable-interest,
U.S.-dollar-denominated debt. No derivative contracts were entered
into during 2013 to mitigate this risk. When assessing interest
rate risk applicable to the Company's variable-interest,
U.S.-dollar-denominated debt, the Company believes 1% volatility is
a reasonable measure. The effect of interest rates increasing by 1%
would decrease the Company's net earnings by $0.2 million for the
year ended December 31, 2013. The effect of interest rates
decreasing by 1% would increase the Company's net earnings by $0.2
million for year ended December 31, 2013.
Credit Risk
Credit risk is the risk of loss if counter-parties do not
fulfill their contractual obligations. The Company's exposure to
credit risk primarily relates to accounts receivable, the majority
of which are in respect of oil operations. The Company is and may
in the future be exposed to third-party credit risk through its
contractual arrangements with its current or future joint interest
partners, marketers of its petroleum production and other parties,
including the governments of Egypt and Yemen. Significant changes
in the oil industry, including fluctuations in commodity prices and
economic conditions, environmental regulations, government policy,
royalty rates and other geopolitical factors, could adversely
affect the Company's ability to realize the full value of its
accounts receivable. The Company currently has, and historically
has had, a significant account receivable outstanding from the
Government of Egypt. While the Government of Egypt does make
payments on these amounts owing, the timing of these payments has
historically been longer than normal industry standard. Despite
these factors, the Company expects to collect this account
receivable in full, although there can be no assurance that this
will occur. In the event the Government of Egypt fails to meet its
obligations, or other third-party creditors fail to meet their
obligations to the Company, such failures could individually or in
the aggregate have a material adverse effect on the Company, its
cash flow from operating activities and its ability to conduct its
ongoing capital expenditure program. The Company has not
experienced any material credit loss in the collection of accounts
receivable to date.
In Egypt, the Company sold all of its 2013 and 2012 production
to EGPC. In Yemen, the Company sold all of its 2013 and 2012 Block
32 production to Arcadia Energy Pte Ltd. Block S-1 production was
sold to Occidental Oil Asia Pte. Ltd. in 2012. Management considers
such transactions normal for the Company and the international oil
industry in which it operates.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. 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 proved reserves, to acquire strategic oil and gas
assets and to repay debt.
The Company actively maintains credit facilities to ensure it
has sufficient available funds to meet current and foreseeable
financial requirements at a reasonable cost. Management believes
that future funds flows from operations, working capital and
availability under existing banking arrangements will be adequate
to support these financial liabilities, as well as its capital
programs.
Although the Company's Egyptian PSCs clearly state that the
Company may transfer funds out of Egypt at its discretion, there is
no certainty that in the future exchange controls will not be
implemented that would prevent the Company from transferring funds
abroad. In Egypt, the Government has imposed monetary and currency
exchange control measures that include restrictions on the free
disposition of funds deposited with banks and tight restrictions on
transferring funds abroad, with certain exceptions for transfers
related to foreign trade and other authorized transactions approved
by the country's central bank. The Egyptian central bank may
require prior authorization and may or may not grant such
authorization for the Company's foreign subsidiaries to transfer
funds to the Company and there may be a tax imposed with respect to
the expatriation of the proceeds from the Company's funds held in
Egypt.
To date, the Company has experienced no difficulties with
transferring funds abroad.
Operational Risk
The Company's future success largely depends on its ability to
exploit its current reserve base and to find, develop or acquire
additional oil reserves that are economically recoverable. Failure
to acquire, discover or develop these additional reserves will have
an impact on cash flows of the Company.
Third parties operate some of the assets in which TransGlobe has
interests. As a result, TransGlobe may have limited ability to
exercise influence over the operations of these assets and their
associated costs. The success and timing of these activities may be
outside of the Company's control.
To mitigate these operational risks, as part of its capital
approval process, the Company applies rigorous geological,
geophysical and engineering analysis to each prospect. The Company
utilizes its in-house expertise for all international ventures or
employs and contracts professionals to handle each aspect of the
Company's business. The Company retains independent reserve
evaluators to determine year-end Company reserves and estimated
future net revenues.
The Company also mitigates operational risks by maintaining a
comprehensive insurance program according to customary industry
practice, but cannot fully insure against all risks.
Safety, Environmental and Regulatory Risk
To mitigate environmental risks, the Company conducts its
operations to ensure compliance with government regulations and
guidelines. Monitoring and reporting programs for environmental
health and safety performance in day-to-day operations, as well as
inspections and assessments, are designed to provide assurance that
environmental and regulatory standards are met. Security risks are
managed through security procedures designed to protect
TransGlobe's personnel and assets. The Company has a
"Whistleblower" Protection Policy which protects employees if they
raise any concerns regarding TransGlobe's operations, accounting or
internal control matters.
Regulatory and legal risks are identified and monitored by
TransGlobe's corporate team and external legal professionals to
ensure that the Company continues to comply with laws and
regulations.
Political Risk
TransGlobe operates in countries with political, economic and
social systems which subject the Company to a number of risks that
are not within the control of the Company. These risks may include,
among others, currency restrictions and exchange rate fluctuations,
loss of revenue and property and equipment as a result of
expropriation, nationalization, war, insurrection and geopolitical
and other political risks, increases in taxes and governmental
royalties, changes in laws and policies governing operations of
foreign-based companies, economic and legal sanctions and other
uncertainties arising from foreign governments.
While the recent civil unrest in Egypt and Yemen has created
uncertainty regarding the Company's political risk, management
believes that the Company is well positioned to adapt to this
situation due to its increasing production, manageable debt levels,
positive cash generation from operations and the availability of
cash and cash equivalents. However, if the political issues in
Egypt and Yemen continue for an extended period of time, the
Company may be forced to reduce its capital spending including
drilling and/or completing fewer wells than anticipated, which will
have a negative effect on current and future production volumes and
correspondingly proved and probable reserves and cash flows.
Consolidated Statements of Earnings and Comprehensive Income
(Expressed in thousands of U.S. Dollars, except per share
amounts)
|
2013 |
2012 |
| REVENUE |
|
|
|
Oil sales, net of royalties |
$ |
315,316 |
|
$ |
317,666 |
|
|
Derivative gain (loss) on commodity contracts |
|
- |
|
|
(125 |
) |
|
Finance revenue |
|
362 |
|
|
452 |
|
|
|
315,678 |
|
|
317,993 |
|
|
|
|
|
|
| EXPENSES |
|
|
|
|
|
Production and operating |
|
65,791 |
|
|
52,367 |
|
|
General and administrative |
|
27,569 |
|
|
28,206 |
|
|
Foreign exchange (gain) loss |
|
(5,042 |
) |
|
(105 |
) |
|
Finance costs |
|
9,130 |
|
|
13,901 |
|
|
Exploration |
|
136 |
|
|
368 |
|
|
Depletion, depreciation and amortization |
|
49,414 |
|
|
46,946 |
|
|
Unrealized (gain) loss on financial instruments |
|
(5,254 |
) |
|
425 |
|
|
Impairment loss |
|
30,071 |
|
|
76 |
|
|
|
171,815 |
|
|
142,184 |
|
|
|
|
|
|
| Earnings before income taxes |
|
143,863 |
|
|
175,809 |
|
|
|
|
|
|
| Income tax expense (recovery) - current |
|
88,851 |
|
|
88,603 |
|
|
|
- deferred |
|
(3,500 |
) |
|
(528 |
) |
|
|
85,351 |
|
|
88,075 |
|
| NET EARNINGS AND COMPREHENSIVE INCOMEFOR THE YEAR |
$ |
58,512 |
|
$ |
87,734 |
|
|
|
|
|
|
| Earnings per share |
|
|
|
|
|
Basic |
$ |
0.79 |
|
$ |
1.20 |
|
|
Diluted |
$ |
0.65 |
|
$ |
1.16 |
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
(Expressed in thousands of U.S. Dollars)
|
As at December 31, 2013 |
As at December 31, 2012 |
| ASSETS |
|
|
| Current |
|
|
|
Cash and cash equivalents |
$ |
122,092 |
$ |
82,974 |
|
Accounts receivable |
|
148,284 |
|
221,017 |
|
Prepaids and other |
|
8,460 |
|
6,813 |
|
Product inventory |
|
1,525 |
|
- |
|
|
280,361 |
|
310,804 |
| Non-Current |
|
|
|
|
|
Restricted cash |
|
1,546 |
|
782 |
|
Deferred financing costs |
|
2,678 |
|
- |
|
Intangible exploration and evaluation assets |
|
89,991 |
|
48,414 |
|
Property and equipment |
|
|
|
|
|
|
Petroleum properties |
|
288,756 |
|
280,895 |
|
|
Other
assets |
|
4,288 |
|
4,350 |
|
Goodwill |
|
8,180 |
|
8,180 |
|
$ |
675,800 |
$ |
653,425 |
|
|
|
|
|
| LIABILITIES |
|
|
|
|
| Current |
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
38,392 |
$ |
48,587 |
|
|
38,392 |
|
48,587 |
| Non-Current |
|
|
|
|
|
Long-term debt |
|
- |
|
16,885 |
|
Convertible debentures |
|
87,539 |
|
98,742 |
|
Deferred taxes |
|
48,863 |
|
52,363 |
|
Other long-term liabilities |
|
816 |
|
988 |
|
|
175,610 |
|
217,565 |
|
|
|
|
|
| SHAREHOLDERS' EQUITY |
|
|
|
|
|
Share capital |
|
160,561 |
|
158,721 |
|
Contributed surplus |
|
15,692 |
|
11,714 |
|
Retained earnings |
|
323,937 |
|
265,425 |
|
|
500,190 |
|
435,860 |
|
$ |
675,800 |
$ |
653,425 |
|
|
|
|
|
Consolidated Statement of Changes in Shareholders' Equity
(Expressed in thousands of U.S. Dollars)
|
2013 |
2012 |
|
|
|
| Share Capital |
|
|
|
Balance, beginning of year |
$ |
158,721 |
|
$ |
154,263 |
|
|
Stock options exercised |
|
372 |
|
|
3,333 |
|
|
Transfer from contributed surplus on exercise of options |
|
1,468 |
|
|
1,125 |
|
|
Balance, end of year |
$ |
160,561 |
|
$ |
158,721 |
|
|
|
|
|
|
| Contributed Surplus |
|
|
|
|
|
Balance, beginning of year |
$ |
11,714 |
|
$ |
8,538 |
|
|
Share-based compensation expense |
|
5,446 |
|
|
4,301 |
|
|
Transfer to share capital on exercise of options |
|
(1,468 |
) |
|
(1,125 |
) |
|
Balance, end of year |
$ |
15,692 |
|
$ |
11,714 |
|
|
|
|
|
|
| Retained Earnings |
|
|
|
|
|
Balance, beginning of year |
$ |
265,425 |
|
$ |
177,691 |
|
|
Net earnings and total comprehensive income |
|
58,512 |
|
|
87,734 |
|
|
Balance, end of year |
$ |
323,937 |
|
$ |
265,425 |
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. Dollars)
|
Year Ended December 31, 2013 |
|
Year Ended December 31, 2012 |
|
| CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
| OPERATING |
|
|
|
|
|
Net earnings for the year |
$ |
58,512 |
|
$ |
87,734 |
|
|
Adjustments for: |
|
|
|
|
|
|
|
|
Depletion, depreciation and amortization |
|
49,414 |
|
|
46,946 |
|
|
|
Deferred lease inducement |
|
449 |
|
|
458 |
|
|
|
Impairment of exploration and evaluation costs |
|
30,071 |
|
|
76 |
|
|
|
Stock-based compensation |
|
5,264 |
|
|
4,502 |
|
|
|
Finance costs |
|
9,130 |
|
|
13,901 |
|
|
|
Income tax expense |
|
85,351 |
|
|
88,075 |
|
|
|
Unrealized (gain) loss on commodity contracts |
|
- |
|
|
125 |
|
|
|
Unrealized (gain) loss on financial instruments |
|
(5,254 |
) |
|
425 |
|
|
|
Unrealized (gain) loss on foreign currency translation |
|
(4,968 |
) |
|
(141 |
) |
|
Income taxes paid |
|
(88,851 |
) |
|
(88,603 |
) |
|
Changes in non-cash working capital |
|
60,390 |
|
|
(59,506 |
) |
|
Net cash generated by (used in) operating
activities |
|
199,508 |
|
|
93,992 |
|
|
|
|
|
|
|
|
| INVESTING |
|
|
|
|
|
|
|
Additions to intangible exploration and evaluation
assets |
|
(61,501 |
) |
|
(5,384 |
) |
|
Additions to petroleum properties |
|
(66,703 |
) |
|
(45,386 |
) |
|
Additions to other assets |
|
(966 |
) |
|
(881 |
) |
|
Business acquisitions |
|
- |
|
|
(27,259 |
) |
|
Changes in restricted cash |
|
(764 |
) |
|
1,445 |
|
|
Changes in non-cash working capital |
|
(2,021 |
) |
|
(25,311 |
) |
| Net cash generated by (used in) investing
activities |
|
(131,955 |
) |
|
(102,776 |
) |
|
|
|
|
|
|
|
| FINANCING |
|
|
|
|
|
|
|
Issue of common shares for cash |
|
1,301 |
|
|
3,333 |
|
|
Deferred financing costs |
|
(2,221 |
) |
|
(440 |
) |
|
Interest paid |
|
(7,277 |
) |
|
(6,737 |
) |
|
Increase in long-term debt |
|
23,550 |
|
|
- |
|
|
Issue of convertible debentures |
|
- |
|
|
97,851 |
|
|
Issue costs for convertible debentures |
|
- |
|
|
(4,630 |
) |
|
Repayments of long-term debt |
|
(42,000 |
) |
|
(41,550 |
) |
|
Increase (decrease) in other long-term liabilities |
|
(561 |
) |
|
(592 |
) |
| Net cash generated by (used in) financing
activities |
|
(27,208 |
) |
|
47,235 |
|
| Currency translation differences relating to cash and
cash equivalents |
|
(1,227 |
) |
|
639 |
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS |
|
39,118 |
|
|
39,090 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
82,974 |
|
|
43,884 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR |
$ |
122,092 |
|
$ |
82,974 |
|
|
|
|
|
|
|
|
TransGlobe Energy Corporation is a Calgary-based,
growth-oriented oil and gas exploration and development company
focused on the Middle East/North Africa region with production
operations in the Arab Republic of Egypt and the Republic of Yemen.
TransGlobe's common shares trade on the Toronto Stock Exchange
under the symbol TGL and on the NASDAQ Exchange under the symbol
TGA. TransGlobe's Convertible Debentures trade on the Toronto Stock
Exchange under the symbol TGL.DB.
Cautionary Statement to Investors:
This news release may include certain statements that may be
deemed to be "forward-looking statements" within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995. Such
statements relate to possible future events. All statements other
than statements of historical fact may be forward-looking
statements. Forward-looking statements 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. These statements
involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. Although
TransGlobe's forward-looking statements are based on the beliefs,
expectations, opinions and assumptions of the Company's management
on the date the statements are made, such statements are inherently
uncertain and provide no guarantee of future performance. In
particular, this press release contains forward-looking statements
regarding the Company's appraisal, development and evaluation plans
and the focus of the Company's exploration budget. In addition,
information and statements relating to "resources" are deemed to be
forward-looking information and statements, as they involve the
implied assessment, based on certain estimates and assumptions,
that the resources described exist in the quantities predicted or
estimated, and that the resources described can be profitably
produced in the future. Actual results may differ materially from
TransGlobe's expectations as reflected in such forward-looking
statements as a result of various factors, many of which are beyond
the control of the Company. These factors include, but are not
limited to, unforeseen changes in the rate of production from
TransGlobe's oil and gas properties, changes in price of crude oil
and natural gas, adverse technical factors associated with
exploration, development, production or transportation of
TransGlobe's crude oil and natural gas reserves, changes or
disruptions in the political or fiscal regimes in TransGlobe's
areas of activity, changes in tax, energy or other laws or
regulations, changes in significant capital expenditures, delays or
disruptions in production due to shortages of skilled manpower,
equipment or materials, economic fluctuations, and other factors
beyond the Company's control. With respect to forward-looking
statements contained in this press release, assumptions have been
made regarding, among other things: the Company's ability to obtain
qualified staff and equipment in a timely and cost-efficient
manner; the regulatory framework governing royalties, taxes and
environmental matters in the jurisdictions in which the Company
conducts and will conduct its business; future capital expenditures
to be made by the Company; future sources of funding for the
Company's capital programs; geological and engineering estimates in
respect of the Company's reserves and resources; and the geography
of the areas in which the Company is conducting exploration and
development activities. TransGlobe does not assume any obligation
to update forward-looking statements if circumstances or
management's beliefs, expectations or opinions should change, other
than as required by law, and investors should not attribute undue
certainty to, or place undue reliance on, any forward-looking
statements. Please consult TransGlobe's public filings at
www.sedar.com and www.sec.gov/edgar.shtml for further, more
detailed information concerning these matters, including additional
risks related to TransGlobe's business.
TransGlobe Energy CorporationInvestor RelationsSteve
Langmaid(403)
444-4787investor.relations@trans-globe.comwww.trans-globe.com
TransGlobe Energy (TSX:TGL)
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