TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX:
TGL) (NASDAQ: TGA) is pleased to announce its financial and
operating results for the three and nine period ended September 30,
2010. All dollar values are expressed in United States dollars
unless otherwise stated.
HIGHLIGHTS
- Record third quarter production of 10,138 Bopd, (Egypt 7,601
Bopd, Yemen 2,537 Bopd); October production 10,589 Bopd;
- Record third quarter funds flow of $19.5 million
($0.28/share), a 55% increase over third quarter 2009;
- Third quarter net income of $8.8 million ($0.13/share),
compared to a $1.6 million loss in the third quarter of 2009;
- Drilled 12 wells in third quarter resulting in nine oil wells
(five at West Gharib, three at Block S-1 and one at Block 32);
- Nukhul pools at West Gharib continue to grow with appraisal
drilling; new Nukhul pool oil discovery at East Arta #4, initial
rate 500 Bopd;
- Successful development drilling program in Block S-1, Yemen;
An Nagyah #29 initial rate over 2,000 Bopd;
- Sabbar #1 appraisal well on Safwa pool tested at 500 Bopd at
East Ghazalat; PIIP estimates for Safwa increased by 280%;
- Added to S&P/TSX Small Cap Index.
CORPORATE SUMMARY
The total production from all Nukhul wells in West Gharib
increased to 1,900 Bopd during the quarter from 130 Bopd just nine
months ago. The Company has yet to define the areal extent of the
Nukhul pools. This will be the focus of the fourth quarter drilling
program. Full development of the fields is expected to continue
through 2011 and 2012 with the potential to more than quadruple
current Nukhul production. The West Gharib project area is now the
primary producing asset in the Company's portfolio and continues to
be the growth engine for the future.
In the Western Desert area, the third well in the Safwa field
encountered better reservoir rock and tested at the highest rate to
date. The result has increased the internally estimated P-mean case
gross petroleum initially in place ("PIIP") by 280% to 58 million
barrels after incorporating the Sabbar well results and remapping
the 3-D seismic. Two additional wells are planned for the remainder
of the year. Plans are underway to bring the discovery into
production in 2011.
In the Nuqra Block in Egypt, the Company has firmed up its
drilling plans and anticipates it will drill two exploratory wells
starting in January 2011.
The drilling program in the Republic of Yemen ("Yemen") has
increased production in the third quarter. Two high impact Basement
exploration wells are expected to spud in Yemen within the next few
weeks.
The successful 2010 drilling program is setting the stage for
continued growth in 2011. The drilling plans and budget for 2011
will be released in early December.
A conference call to discuss TransGlobe's third quarter results
presented in this report will be held on Thursday, November 4, 2010
at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) and is
accessible to all interested parties by dialing (416) 340-8018 or
toll-free 1-866-223-7781 (see also TransGlobe's news release dated
October 28, 2010). Online, the web cast may be accessed at
http://events.digitalmedia.telus.com/transglobe/110410/index.php. A
copy of TransGlobe's complete results for the three and nine months
ended September 30, 2010 including Management's Discussion and
Analysis and the Unaudited Interim Consolidated Financial
Statements can be obtained at
http://media3.marketwire.com/docs/1104tgl.pdf. The full report will
also be made available through TransGlobe's website at
www.transglobe.com, SEDAR at www.sedar.com and EDGAR at
www.sec.gov/edgar.shtml
FINANCIAL AND OPERATING RESULTS
(US$000s, except per share, price, volume amounts and % change)
Three Months Ended Nine Months Ended
September 30 September 30
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% %
Financial 2010 2009 Change 2010 2009 Change
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Oil revenue 66,470 46,818 42 189,661 117,754 61
Oil revenue, net of royalties
and other 38,980 28,495 37 112,022 74,017 51
Derivative gain (loss) on
commodity contracts (221) 152 (245) 68 (3,529) 102
Operating expense 6,708 6,971 (4) 18,742 17,378 8
General and administrative
expense 2,999 2,636 14 9,418 7,505 25
Depletion, depreciation and
accretion expense 9,440 14,192 (33) 24,121 40,624 (41)
Income taxes 9,785 6,161 59 27,619 14,966 85
Funds flow from operations(1) 19,535 12,603 55 55,635 35,361 57
Basic per share 0.29 0.19 0.84 0.55
Diluted per share 0.28 0.19 0.82 0.55
Net income (loss) 8,805 (1,618) 29,841 (10,933)
Basic per share 0.13 (0.02) 0.45 (0.17)
Diluted per share 0.13 (0.02) 0.44 (0.17)
Capital expenditures 19,453 10,599 84 47,386 28,005 69
Long-term debt, including
current portion 46,045 52,686 (13) 46,045 52,686 (13)
Common shares outstanding
Basic (weighted-average) 66,775 65,328 2 66,085 64,135 3
Diluted (weighted-average) 69,309 65,328 6 68,402 64,135 7
Total assets 275,885 228,964 20 275,885 228,964 20
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(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Operating
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Average production volumes
(Bopd) 10,138 8,864 14 9,681 9,090 6
Average price ($ per Bbl) 71.27 57.41 24 71.76 47.45 51
Operating expense ($ per Bbl) 7.19 8.55 (16) 7.09 7.00 1
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OPERATIONS UPDATE
ARAB REPUBLIC OF EGYPT
West Gharib, Arab Republic of Egypt (100% working interest,
TransGlobe operated)
Operations and Exploration
Drilling
Delineation drilling of the Nukhul formation continues to be the
primary focus of the expanded 2010 drilling program. During the
third quarter, the Company drilled four oil wells (East Arta #3,
East Arta #4, Arta #21 and Hana #23), one potential oil well (North
Hoshia #3) and two dry holes (Hoshia #9 and West Hoshia #5).
Subsequent to the quarter, four additional oil wells were drilled
(Arta #22, Arta #23, East Arta #5 and East Arta #7).
Arta/East Arta
At present it appears that the Nukhul formation at Arta and East
Arta is part of a large sandstone and conglomerate fan sequence.
The recent drilling indicates the reservoir may comprise one large
oil pool. The total potential productive area covers approximately
8,500 acres extending 14 kilometers north to south by 4 kilometers
west to east. At Arta, the internally estimated PIP has increased
to 54 million barrels of oil ("MMBbl") and the East Arta pool has a
PIIP of 32 MMBbls, using a deterministic P50 case. The undrilled
area between the pools has a potential PIIP of 88 MMBbls using the
same reservoir parameters. The net pay varies between the wells
depending on where they are located on the structure and on the
Nukhul fan deposit. The crestal wells have encountered thinner
sands with 30 to 50 feet of net pay or carbonate wells with zero to
10 feet of net pay. Wells on the flank of the structure have much
thicker sands and better reservoir quality. For example, the most
recent well, East Arta #7, encountered more than 90 feet of net pay
in high porosity and high permeability sands. There is also a
significant amount of structural relief across the deposit. The oil
column is greater than 1,650 feet from the crest of the pool (Arta
#13) to the base of the reservoir at East Arta #7. The oil/water
contact has not been found yet so additional drilling is planned to
define the down dip extent of the pool. Future drill locations will
be focused on the thicker, more productive, flank locations as the
reservoir facies becomes better delineated.
Hana
The Hana #23 well was drilled, cased and completed as a
producing Kareem oil well at an initial rate of 100 Bopd.
North Hoshia
The North Hoshia #3 was drilled, cased and completed as a
potential Nukhul oil well. The well came in structurally low to the
North Hoshia field and has tested water in the lower Nukhul
formation. The well may be recompleted in the Upper Nukhul.
Hoshia
The Nukhul formation discovered in Hoshia #8 was frac'd during
September and is producing at a post-frac rate of 150 Bopd.
West Gharib Forward Drilling Plans
The rigs are currently moving to East Arta #6 (a 1.1 km
appraisal to East Arta #4) and Arta #19 on the south end of Arta,
to be followed by wells at East Arta #8, #9 and #10.
The recent drilling has started to define a potentially large
oil pool on TransGlobe's lands at Arta/East Arta. The development
drilling plan for this pool will initially focus on drilling widely
spaced delineation wells with approximately 640 acre spacing. The
north portion of the Arta field is now largely delineated at 640
acre spacing. The East Arta area requires an additional six to
eight delineation wells. The Arta/East Arta pool could require over
200 wells if developed on an initial well spacing of 40 acres.
Down-spacing to 20 acre well spacing may be required in the future
to increase oil recovery.
The Nukhul oil discovery at Hoshia #8 also requires five to
eight development wells. A Nukhul test is also planned in the
fourth quarter at South Rahmi #8 which may lead to additional
development drilling.
In light of the expanding drilling inventory, the Nukhul
development is being accelerated in 2011 with the addition of a
third drilling rig.
Production
Production from West Gharib averaged 7,601 Bopd to TransGlobe
during the third quarter, a 15% (970 Bopd) increase from the
previous quarter. Production increases were attributable to
increased Nukhul production from Arta and East Arta during the
quarter. Production averaged 7,610 Bopd to TransGlobe during
October.
Total Nukhul production has increased from an average of 130
Bopd in January 2010 to approximately 760 Bopd in the second
quarter, 1,448 Bopd in the third quarter and 1,901 Bopd in
October.
The Company has successfully fracture stimulated the Nukhul
formation in 13 vertical wells and one horizontal well in the West
Gharib area. The initial, pre-frac production from these wells was
between 0 and 80 Bopd. The post-frac initial rates have ranged
between 100 Bopd on the crest of the Arta pool and as high as 800
to 1,000 Bopd on the thicker wells drilled on the flank. The wide
range in post-frac performance makes it challenging to type curve
the post-frac performance, however three trends are emerging. The
low productivity carbonate wells had an average post frac rate of
40 Bopd/well and are producing 0 to 35 Bopd/well. The crestal wells
had an average post frac rate of 223 Bopd/well and are producing in
the 80 to 170/well Bopd range. The flank wells (excluding East Arta
#7) had an average post frac rate of 535 Bopd/well and are
producing in the 320 to 500 Bopd/well range. East Arta #7 is also a
flank well with a better quality thick reservoir. It is expected to
be placed on production in the next two weeks at an initial rate of
greater than 500 Bopd (without a frac).
Quarterly West Gharib Production (Bopd)
2010 2009
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Q-3 Q-2 Q-1 Q-4
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Gross production rate 7,601 6,631 6,848 5,815
TransGlobe working interest 7,601 6,631 6,848 5,815
TransGlobe net (after royalties) 4,626 4,040 4,250 3,775
TransGlobe net (after royalties and
tax)(1) 3,460 3,009 3,222 2,951
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(1) 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.
East Ghazalat Block, Arab Republic of Egypt (50% working
interest)
Operations and Exploration
A three well drilling program commenced on September 13 at the
Sabbar #1 location. The Sabbar #1 well is the first of two planned
appraisal wells on the Safwa structure.
The Sabbar #1 was drilled to a total depth of 4,600 feet, cased
and completed as a Bahariya oil well. Sabbar #1 encountered 40+
feet of net pay in the Bahariya sandstones, 27 feet structurally
higher than the Safwa discovery wells. A 45 foot interval was
perforated and flowed naturally at a rate of 500 Bopd on a short
test. Sabbar #1 is located approximately 1.7 kilometres northeast
of Safwa NW-1 which tested 250 Bopd and Safwa #1 which tested 300
Bopd from the Upper Bahariya (un-stimulated). The positive results
at Sabbar #1 have increased the internally estimated gross PIIP to
58 million barrels of oil ("MMBbl"), up from the initial estimate
of 20.6 MMBbl of oil using the respective probabilistic P-mean
cases.
Drilling commenced on Safwa #2 on October 25th. Safwa #2 is a
step-out appraisal well located approximately 350 meters east of
Safwa #1.
Following Safwa #2 the drilling rig will move to Nakhil #1
targeting a prospect which has an internally estimated gross PIIP
of 10.4 MMBbl using the P-mean case. The Nakhil prospect is located
approximately eight kilometres southwest of Safwa #1.
TransGlobe and the operator are evaluating early development
options for the Safwa discovery including the commencement of
production by mid-2011.
Nuqra Block 1, Arab Republic of Egypt (71.43% working interest,
TransGlobe operated)
Operations and Exploration
TransGlobe has contracted the drilling rig currently working on
East Ghazalat for a one-year period. Initially it will drill two
exploration wells in Nuqra commencing in late December/early
January. The rig will be available for Nukhul development drilling
at West Gharib following the Nuqra program. The two exploration
wells (Selsella #1 and Diwan #1) are targeting prospects with gross
PIIP of 13.6 MMBbl and 46 MMBbl respectively, based on internally
generated estimates using the respective probabilistic P-mean
cases.
YEMEN EAST- Masila Basin
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
During the third quarter, the Safa #1 exploration well was
drilled and abandoned.
Subsequent to the quarter, the Godah #12 development well was
drilled and completed as a Qishn oil well. The drilling rig will be
moved to Block 72 to drill the Gabdain #1 exploration well.
Production
Production from Block 32 averaged 4,232 Bopd (585 Bopd to
TransGlobe) during the quarter, representing a 5% decrease from the
previous quarter primarily due to natural declines.
Production averaged approximately 3,986 Bopd (550 Bopd to
TransGlobe) during October.
Quarterly Block 32 Production (Bopd)
2010 2009
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Q-3 Q-2 Q-1 Q-4
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Gross production rate 4,232 4,464 4,948 5,174
TransGlobe working interest 585 616 683 715
TransGlobe net (after royalties) 332 315 472 437
TransGlobe net (after royalties and
tax)(1) 248 215 400 346
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(1) Under the terms of the Block 32 Production Sharing Agreement ("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
The Block 72 joint venture partnership entered the second,
30-month exploration period in January 2009 which carries a
commitment of one exploration well.
The Block 72 joint venture partnership entered into a farm-out
agreement with TOTAL E&P Yemen who is the Operator of Block 10
in the Masila Basin. Under the terms of the agreement, the Company
reduced its working interest from 33% to 20%.
An exploration well (Gabdain #1) is planned for
November/December of 2010. The operator (DNO) is currently moving
the drilling rig from Block 32 to the Gabdain well site and it is
expected that drilling will commence in the next two to three
weeks. Gabdain #1 is targeting a fractured basement prospect
identified on 3-D seismic on the northern portion of Block 72. The
Gabdain fractured Basement prospect has an internally estimated
gross PIIP of 185 MMBbl, using the probabilistic P-mean case.
YEMEN WEST- Marib Basin
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
During the quarter, three horizontal wells were drilled and
completed as Lam 'A' oil producers in the An Nagyah pool. The wells
were comprised of two re-entries (An Nagyah #4 and #25) and a new
horizontal development well at An Nagyah #29. The An Nagyah #2
vertical well was re-entered and completed as a horizontal
producing Lam 'A' oil well in late October.
The drilling rig is currently mobilizing to An Nagyah #31 to
drill a dual target exploration well. The An Nagyah #31 exploration
well is targeting a separate Lam terrace adjacent to the producing
An Nagyah field and a fractured Basement prospect under the main
field. The well will be drilled vertically through the Lam
formation and then directionally drilled at a high angle into the
Basement structure. The well is targeting a gross PIIP of 21.2
MMBbl in the Lam prospect and 73.1 MMBbl in the fractured Basement
prospect, based on internally generated estimates using the
respective probabilistic P-mean case.
Production
Production from Block S-1 averaged 7,812 Bopd (1,952 Bopd to
TransGlobe) during the third quarter, unchanged from the previous
quarter. Curtailed production during July due to compressor
overhauls was offset by new producers in August and September.
Concurrent with the horizontal development drilling program, the
operator is installing additional compression to increase gas
injection capacity in December 2010 and in the second quarter of
2011.
Production averaged approximately 9,715 Bopd (2,429 Bopd to
TransGlobe) during October, representing a 24% increase (477 Bopd
increase to TransGlobe) from the third quarter, primarily due to
the new producers at An Nagyah. The An Nagyah #29 horizontal is
currently producing in excess of 2,000 Bopd.
Quarterly Block S-1 Production (Bopd)
2010 2009
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Q-3 Q-2 Q-1 Q-4
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Gross field production rate 7,812 7,836 8,652 8,504
TransGlobe working interest 1,952 1,959 2,163 2,126
TransGlobe net (after royalties) 1,003 995 1,169 867
TransGlobe net (after royalties and
tax)(1) 756 744 906 585
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(1) 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
The PSA for Block 75 was ratified and signed into law effective
March 8, 2008. The first, three-year exploration phase has a work
commitment of 3-D seismic and one exploration well. The 3-D seismic
was acquired in 2009. One exploration well is planned as part of
the Block S-1/75 drilling program.
The Block 75 exploration well (Osaylan SW) is currently
scheduled for the first quarter of 2011. The Osaylan SW exploration
well is targeting a Lam formation exploration prospect which has an
internally estimated gross PIIP of 184 MMBbl using the
probabilistic P-mean case.
November 4, 2010
Management's discussion and analysis ("MD&A") should be read
in conjunction with the unaudited interim financial statements for
the three months and nine months ended September 30, 2010 and 2009
and the audited financial statements and MD&A for the year
ended December 31, 2009 included in the Company's annual report.
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Canada
in the currency of the United States (except where otherwise
noted). Additional information relating to the Company, including
the Company's Annual Information Form, is on SEDAR at
www.sedar.com. The Company's annual report and Form 40-F may be
found on EDGAR at www.sec.gov.
READER ADVISORIES
Forward-Looking Statements
This MD&A 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. 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. TransGlobe does not assume
any obligation to update forward-looking statements, other than as
required by law, if circumstances or management's beliefs,
expectations or opinions should change 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 for further, more detailed
information concerning these matters.
Non-GAAP 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 Generally Accepted Accounting Principles ("GAAP").
Funds flow from operations is a non-GAAP 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 may not be comparable to similar measures used
by other companies.
Reconciliation of Funds Flow from Operations
Three Months Ended Nine Months Ended
September 30 September 30
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($000s) 2010 2009 2010 2009
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Cash flow from operating activities 12,297 1,264 32,178 24,205
Changes in non-cash working capital 7,238 11,339 23,457 11,156
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Funds flow from operations 19,535 12,603 55,635 35,361
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Debt-to-funds flow ratio
Debt-to-funds flow is a non-GAAP 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, over funds flow from operations for the
trailing twelve months. Debt-to-funds flow may not be comparable to
similar measures used by other companies.
Netback
Netback is a non-GAAP measure that represents sales net of
royalties (all government interests, net of income taxes),
operating expenses and current taxes. Management believes that
netback is a useful supplemental measure to analyze operating
performance and provide an indication of the results generated by
the Company's principal business activities prior to the
consideration of other income and expenses. Netback may not be
comparable to similar measures used by other companies.
TRANSGLOBE'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"). Egypt and Yemen include the Company's
exploration, development and production of crude oil. TransGlobe
disposed of its Canadian oil and gas operations in 2008 to
reposition itself as a 100% oil, Middle East/North Africa growth
company.
SELECTED QUARTERLY FINANCIAL INFORMATION
2010
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($000s, except per share, price and
volume amounts) Q-3 Q-2 Q-1
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Average sales volumes (Bopd) 10,138 9,206 9,694
Average price ($/Bbl) 71.27 73.46 70.66
Oil sales 66,470 61,540 61,651
Oil sales, net of royalties and other 38,980 35,638 37,404
Cash flow from operating activities 12,297 15,627 4,254
Funds flow from operations(1) 19,535 17,027 19,073
Funds flow from operations per share
- Basic 0.29 0.26 0.29
- Diluted 0.28 0.25 0.29
Net income (loss) 8,805 9,438 11,598
Net income (loss) per share
- Basic 0.13 0.14 0.18
- Diluted 0.13 0.14 0.17
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Total assets 275,885 263,345 248,446
Cash and cash equivalents 15,412 21,437 18,845
Total long-term debt, including
current portion 46,045 49,977 49,888
Debt-to-funds flow ratio (2) 0.7 0.9 0.9
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2009 2008
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($000s, except per share,
price and volume amounts) Q-4 Q-3 Q-2 Q-1 Q-4
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Average sales volumes
(Bopd) 8,656 8,864 9,619 8,788 6,893
Average price ($/Bbl) 62.84 57.41 48.62 35.88 46.18
Oil sales 50,044 46,818 42,557 28,379 29,285
Oil sales, net of royalties
and other 28,788 28,495 26,462 19,060 18,272
Cash flow from operating
activities 12,594 1,264 15,052 7,889 11,252
Funds flow from operations(1) 9,703 12,603 14,117 8,641 6,134
Funds flow from operations
per share
- Basic 0.15 0.19 0.22 0.14 0.10
- Diluted 0.15 0.19 0.22 0.14 0.10
Net income (loss) 2,516 (1,618) (4,361) (4,954) 7,640
Net income (loss) per share
- Basic 0.04 (0.02) (0.07) (0.08) 0.14
- Diluted 0.04 (0.02) (0.07) (0.08) 0.13
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Total assets 228,882 228,964 229,658 238,145 228,238
Cash and cash equivalents 16,177 14,804 23,952 22,041 7,634
Total long-term debt,
including current portion 49,799 52,686 52,551 57,347 57,230
Debt-to-funds flow ratio (2) 1.1 1.3 1.2 1.1 1.0
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(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
(2) Debt-to-funds flow ratio is a non-GAAP measure that represents total
current and long-term debt over funds flow from operations for the
trailing 12 months.
During the third quarter of 2010, TransGlobe has:
- Maintained a strong financial position, reporting a
debt-to-funds flow ratio of 0.7 at September 30, 2010 (September
30, 2009 - 1.3);
- Funded capital programs entirely with funds flow from
operations;
- Reported a 55% increase in funds flow from operations due to a
24% increase in commodity prices along with a 14% increase in sales
volumes compared to Q3-2009; and
- Reported net income in Q3-2010 of $8.8 million (Q3-2009 - $1.6
million net loss) mainly due to higher commodity prices and
production volumes in the quarter compared with the same period in
2009, along with lower depletion and depreciation expense.
2010 VARIANCES
$ Per Share
$000s Diluted % Variance
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Q3-2009 net loss (1,618) (0.02)
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Cash items
Volume variance 8,400 0.11 519
Price variance 11,252 0.16 695
Royalties (9,168) (0.13) (567)
Expenses:
Operating 263 - 16
Realized derivative loss 442 0.01 27
Cash general and administrative (127) - (8)
Current income taxes (3,624) (0.05) (224)
Realized foreign exchange gain (208) - (13)
Interest on long-term debt (324) - (20)
Other income 27 - 2
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Total cash items variance 6,933 0.10 427
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Non-cash items
Unrealized derivative gain (815) (0.01) (49)
Depletion and depreciation 4,752 0.06 294
Stock-based compensation (236) - (15)
Amortization of deferred financing costs (211) - (13)
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Total non-cash items variance 3,490 0.05 217
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Q3-2010 net income 8,805 0.13 644
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Net income increased to $8.8 million in Q3-2010 compared to a
loss of $1.6 million in Q3-2009, which was mostly due to
significant increases in commodity prices and production volumes
along with a decrease in depletion and depreciation, which was
partially offset by higher royalties and income taxes.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
2010 2009
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dated Brent average oil price
($/Bbl) 76.86 78.30 76.10 74.56 68.27
U.S./Canadian Dollar average
exchange rate 1.039 1.028 1.016 1.056 1.098
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The price of Dated Brent oil averaged 13% higher in Q3-2010
compared with Q3-2009. Global markets are currently in a period of
economic recovery with improved liquidity and access to capital, in
addition to strengthening oil prices. TransGlobe's management
believes the Company is well positioned to take advantage of the
improving economy due to its increasing production, manageable debt
levels, positive cash generation from operations and the
availability of cash and cash equivalents.
The Company designed its 2010 budget to be flexible, allowing
spending to be adjusted as commodity prices change and forecasts
are reviewed.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest Before Royalties and Other (Bopd)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt - Oil sales 7,601 5,747 7,029 5,833
Yemen - Oil sales 2,537 3,117 2,652 3,257
----------------------------------------------------------------------------
Total Company - daily sales volumes 10,138 8,864 9,681 9,090
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback
Consolidated
Nine Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 189,661 71.76 117,754 47.45
Royalties and other 77,639 29.38 43,737 17.62
Current taxes 27,619 10.45 14,966 6.03
Operating expenses 18,742 7.09 17,378 7.00
----------------------------------------------------------------------------
Netback 65,661 24.84 41,673 16.80
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 66,470 71.27 46,818 57.41
Royalties and other 27,490 29.47 18,323 22.47
Current taxes 9,785 10.49 6,161 7.56
Operating expenses 6,708 7.19 6,971 8.55
----------------------------------------------------------------------------
Netback 22,487 24.12 15,363 18.83
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt
Nine Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 133,676 69.66 68,265 42.87
Royalties and other 51,782 26.99 23,969 15.05
Current taxes 20,461 10.66 9,658 6.07
Operating expenses 11,800 6.15 9,695 6.09
----------------------------------------------------------------------------
Netback 49,633 25.86 24,943 15.66
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 48,551 69.43 27,339 51.71
Royalties and other 18,999 27.17 9,584 18.13
Current taxes 7,447 10.65 3,874 7.33
Operating expenses 4,313 6.17 4,241 8.02
----------------------------------------------------------------------------
Netback 17,792 25.44 9,640 18.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The netback per Bbl in Egypt increased 40% and 65% in the three
and nine months ended September 30, 2010, respectively, compared
with the same periods of 2009, mainly as a result of oil prices
increasing by 34% and 62%, respectively, partially offset by higher
royalty and tax rates. The average selling price during the three
months ended September 30, 2010 was $69.43/Bbl, which represents a
gravity/quality adjustment of approximately $7.43/Bbl to the
average Dated Brent oil price for the period of $76.86/Bbl.
Royalties and taxes as a percentage of revenue increased to 54%
in the three and nine months ended September 30, 2010, compared
with 49% in the same period of 2009. Royalty and tax rates
fluctuate in Egypt due to changes in the cost oil whereby the
Production Sharing Contract ("PSC") allows for recovery of
operating and capital costs through a reduction in government
take.
Operating expenses on a per Bbl basis for the three and nine
months ended September 30, 2010 decreased 23% and increased 1%,
respectively, compared with the same periods of 2009. This is
mainly due to a significant increase in production in Egypt during
the three and nine month periods ended September 30, 2010 compared
with the same periods in 2009, along with more workovers performed
in the third quarter of 2009 compared to the third quarter of
2010.
Yemen
Nine Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 55,985 77.33 49,489 55.66
Royalties and other 25,857 35.71 19,768 22.23
Current taxes 7,158 9.89 5,308 5.97
Operating expenses 6,942 9.59 7,683 8.64
----------------------------------------------------------------------------
Netback 16,028 22.14 16,730 18.82
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 17,919 76.77 19,479 67.92
Royalties and other 8,491 36.38 8,739 30.47
Current taxes 2,338 10.02 2,287 7.97
Operating expenses 2,395 10.26 2,730 9.52
----------------------------------------------------------------------------
Netback 4,695 20.11 5,723 19.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Yemen, the netback per Bbl increased 1% and 18% in the three
and nine months ended September 30, 2010, respectively, compared
with the same periods in 2009 primarily as a result of oil prices
increasing by 13% and 39%, respectively, partially offset by higher
royalty and tax rates.
Royalties and taxes as a percentage of revenue increased to 60%
and 59% in the three and nine months ended September 30, 2010,
respectively, compared with 57% and 51%, respectively, in 2009.
Royalty and tax rates fluctuate in Yemen due to changes in the
amount of cost sharing oil, whereby the Block 32 and Block S-1
Production Sharing Agreements ("PSAs") allow for the recovery of
operating and capital costs through a reduction in Ministry of Oil
and Minerals' take of oil production.
Operating expenses on a per Bbl basis for the three and nine
months ended September 30, 2010 increased 8% and 11%, respectively,
mostly due to lower volumes compared to the same periods in
2009.
DERIVATIVE COMMODITY CONTRACTS
TransGlobe uses hedging arrangements as part of its risk
management strategy to manage commodity price fluctuations and
stabilize cash flows for future exploration and development
programs. In July 2010 the Company bought out two financial collar
contracts that had been set to expire on August 31, 2010.
Furthermore, in the first week of October 2010 the Company
purchased two new financial floor contracts, which both carry
volumes of 10,000 Bbl/month, that are effective from January 1,
2011 to December 31, 2011.
The estimated fair value of unrealized commodity contracts is
reported on the Consolidated Balance Sheets, with any change in the
unrealized positions recorded to income. The fair values of these
transactions are based on an approximation of the amounts that
would have been paid to, or received from, counter-parties to
settle the transactions outstanding as at the Consolidated Balance
Sheet date with reference to forward prices and market values
provided by independent sources. The actual amounts realized may
differ from these estimates. The realized loss on commodity
contracts in the first nine months of 2010 relates mostly to the
purchase of a new financial floor derivative commodity contract for
$0.4 million, compared with $0.2 million in realized gains for the
same period in 2009 as a result of depressed oil prices in the
first nine months of last year. The mark-to-market valuation of
TransGlobe's future derivative commodity contracts increased in
value by $0.5 million between December 31, 2009 and September 30,
2010, moving from a $0.5 million liability at December 31, 2009 to
an almost even position at September 30, 2010, thus resulting in a
$0.5 million unrealized gain on future derivative commodity
contracts being recorded in the period.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized cash (loss) gain on commodity
contracts(1) (35) (477) (452) 191
Unrealized gain (loss) on commodity
contracts(1)(1) (186) 629 520 (3,720)
----------------------------------------------------------------------------
Total derivative gain (loss) on
commodity contracts (221) 152 68 (3,529)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Realized cash gain (loss) represents actual cash settlements, receipts
and premiums paid under the respective contracts. (1)(1) The unrealized
loss on derivative commodity contracts represents the change in fair
value of the contracts during the period.
If the Dated Brent oil price remains at the level experienced at
the end of Q3-2010, the derivative asset will be realized over the
next year. However, a 10% decrease in Dated Brent oil prices would
result in a $0.2 million increase in the derivative commodity
contract asset, thus increasing the unrealized gain by the same
amount. Conversely, a 10% increase in Dated Brent oil prices would
not have a material effect on the unrealized gain on commodity
contracts. The following commodity contracts are outstanding
immediately following September 30, 2010:
Dated
Brent
Pricing
Period Volume Type Put
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
Financial
July 1, 2010-December 31, 2010 10,000 Bbl/month Floor $ 60.00
Financial
July 1, 2010-December 31, 2010 20,000 Bbl/month Floor $ 65.00
Financial
January 1, 2011-December 31, 2011(1) 20,000 Bbl/month Floor $ 65.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Contract was purchased in October 2010.
Including the contracts purchased in October 2010, the total
volumes hedged for the balance of 2010 and following years are:
Three Months
2010 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bbls 90,000 240,000
Bopd 978 658
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At September 30, 2010, all of the derivative commodity contracts
were classified as current assets.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
Nine Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 9,739 3.68 8,259 3.33
Stock-based compensation 1,670 0.63 1,493 0.60
Capitalized G&A and overhead
recoveries (1,991) (0.75) (2,247) (0.90)
----------------------------------------------------------------------------
G&A (net) 9,418 3.56 7,505 3.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 3,006 3.22 2,844 3.49
Stock-based compensation 759 0.81 523 0.64
Capitalized G&A and overhead recoveries (766) (0.82) (731) (0.90)
----------------------------------------------------------------------------
G&A (net) 2,999 3.21 2,636 3.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A expenses (net) increased 14% (1% decrease on a per Bbl
basis) and 25% (17% on a per Bbl basis) in the three and nine
months ended September 30, 2010, respectively, compared with the
same periods in 2009 partly due to a strengthening Canadian dollar
which accounted for approximately 41% and 51% of the increases,
respectively, as the majority of TransGlobe's G&A costs are
incurred in Canadian dollars. The remainder of the increase was due
to increased insurance, staffing and office costs.
INTEREST ON LONG-TERM DEBT
Interest expense for the three and nine months ended September
30, 2010 increased to $1.1 million and $2.1 million, respectively
(2009 - $0.6 million and $1.9 million, respectively). Interest
expense includes interest on long-term debt and amortization of
transaction costs associated with long-term debt. In the three and
nine months ended September 30, 2010, the Company expensed $0.3
million and $0.5 million, respectively, of transaction costs (2009
- $0.1 million and $0.5 million, respectively). The Company had
$50.0 million of debt outstanding at September 30, 2010 (September
30, 2009 - $53.0 million). The long-term debt that was outstanding
at September 30, 2010 bore interest at LIBOR plus an applicable
margin that varies from 3.75% to 4.75% depending on the amount
drawn under the facility. In previous quarters long-term debt bore
interest at the Eurodollar rate plus three percent under the terms
of the previous credit facility that was terminated in July 2010
and replaced with a new Borrowing Base Facility.
DEPLETION AND DEPRECIATION ("DD&A")
Nine Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 18,186 9.48 33,150 20.82
Yemen 5,752 7.94 7,331 8.24
Corporate 183 - 143 -
----------------------------------------------------------------------------
24,121 9.13 40,624 16.37
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 7,468 10.68 11,747 22.22
Yemen 1,893 8.11 2,394 8.35
Corporate 79 - 51 -
----------------------------------------------------------------------------
9,440 10.12 14,192 17.40
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, DD&A decreased 52% and 54% on a per Bbl basis for
the three and nine month periods ended September 30, 2010,
respectively, due to significant increases to Proved reserves at
year-end 2009.
In Yemen, DD&A decreased 3% and 4% on a per Bbl basis for
the three and nine months ended September 30, 2010, respectively,
due to Proved reserve additions at year-end 2009.
In Egypt, unproven properties of $13.9 million (2009 - $9.9
million) relating to Nuqra ($8.0 million), West Gharib ($1.8
million) and East Ghazalat ($4.1 million) were excluded from the
costs subject to DD&A in the quarter. In Yemen, unproven
property costs of $11.0 million (2009 - $10.6 million) relating to
Block 72 and Block 75 were excluded from the costs, subject to
DD&A in the quarter.
CAPITAL EXPENDITURES
Nine Months Ended September 30
----------------------------------------------------------------------------
($000s) 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 42,484 21,491
Yemen 4,636 6,345
Corporate 266 169
----------------------------------------------------------------------------
Total 47,386 28,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, total capital expenditures in the first nine months of
2010 were $42.5 million (2009 - $21.5 million). The Company drilled
20 wells, resulting in 16 oil wells (four at Hana, three at Arta,
three at East Arta, two at North Hoshia, one at each of Hana West
and Hoshia, and two at East Ghazalat), in addition to two dry holes
at East Ghazalat, one at Hoshia and one at West Hoshia.
In Yemen, total capital expenditures in 2010 were $4.6 million
(2009 - $6.3 million). Three oil development wells were drilled in
the first nine months of 2010 at Block S-1, along with one oil
development well and one dry hole at Block 32.
OUTSTANDING SHARE DATA
As at September 30, 2010, the Company had 66,917,172 common
shares issued and outstanding.
The Company received regulatory approval to purchase, from
time-to-time, as it considers advisable, up to 6,116,905 common
shares under a Normal Course Issuer Bid which commenced September
7, 2009 and expired September 6, 2010. During the nine months ended
September 30, 2010 and during the year ended December 31, 2009, the
Company did not repurchase any common shares.
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 operating
activities (calculated on a 12-month trailing basis). TransGlobe's
debt-to-funds flow from operating activities ratio, a key
short-term leverage measure, remained strong at 0.7 times at
September 30, 2010. 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 periods ended September 30, 2010 and 2009:
Sources and Uses of Cash
Nine Months Ended September 30
----------------------------------------------------------------------------
($000s) 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
Funds flow from operations(1) 55,635 35,361
Exercise of options 7,406 80
Increase in long-term debt 55,916
Issuance of common shares, net of share issuance
costs - 15,109
----------------------------------------------------------------------------
118,957 50,550
Cash used
Capital expenditures 47,386 28,005
Deferred financing costs 4,277 -
Transfer to restricted cash 1,890
Repayment of long-term debt 55,916 5,000
Options surrendered for cash payments - 13
----------------------------------------------------------------------------
109,469 33,018
----------------------------------------------------------------------------
Net cash from operations 9,488 17,532
Changes in non-cash working capital (10,253) (10,362)
----------------------------------------------------------------------------
Increase in cash and cash equivalents (765) 7,170
Cash and cash equivalents - beginning of period 16,177 7,634
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 15,412 14,804
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Funding for the Company's capital expenditures was provided by
funds flow from operations. The Company expects to fund its 2010
exploration and development program of $71.0 million ($24.0 million
remaining) and contractual commitments through the use of working
capital and cash generated by operating activities. The use of new
financing during 2010 may also be utilized to finance new
opportunities. Fluctuations in commodity prices, product demand,
foreign exchange rates, interest rates and various other risks may
impact capital resources.
Working capital is the amount by which current assets exceed
current liabilities. At September 30, 2010, the Company had working
capital of $47.9 million (December 31, 2009 - deficiency of $11.8
million). The working capital deficiency as at December 31, 2009
was primarily the result of the reclassification of long-term debt
as a current liability. On July 22, 2010, the Company entered into
a new Borrowing Base Facility. Therefore, as at September 30, 2010
the credit facility was classified as long-term which eliminated
the working capital deficiency. While the reclassification of bank
debt accounts for the majority of the increase in working capital,
other increases to working capital in 2010 are the result of
increased accounts receivable due to higher oil prices and higher
sales volumes. These receivables are not considered to be impaired;
however, to mitigate this risk, the Company entered into an
insurance program on a portion of the receivable balance.
At June 30, 2010, TransGlobe had a $60.0 million Revolving
Credit Agreement of which $50.0 million was drawn. Amounts drawn
under the Revolving Credit Agreement were set to become due
September 25, 2010. On July 22, 2010, the Company entered into a
new five-year $100.0 million Borrowing Base Facility and paid out
the original Revolving Credit Agreement. As repayments on the new
Borrowing Base Facility are not expected to commence until 2012,
the entire balance is presented as a long-term liability on the
consolidated balance sheets. Repayments will be made on a
semi-annual basis according to the scheduled reduction of the
facility. As of September 30, 2010, the Company has incurred
financing costs related to the new Borrowing Base Facility in the
amount of $4.3 million.
September December
($000s) 30, 2010 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bank debt 50,000 50,000
Deferred financing costs (3,955) (201)
----------------------------------------------------------------------------
46,045 49,799
----------------------------------------------------------------------------
Current portion of long-term debt (net of
deferred financing costs) - 49,799
----------------------------------------------------------------------------
Long-term debt (net of deferred financing costs) 46,045 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 Less More
in Financial Contractual than 1-3 4-5 than
Statements Cash Flows 1 year years years 5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts Yes-Liability
payable and
accrued
liabilities $ 27,364 $ 27,364 $ - $ - $ -
Long-term debt:
Borrowing Base
Facility Yes-Liability 50,000 - 29,557 20,443 -
Office and
equipment
leases No 11,051 1,567 3,034 1,916 4,534
Minimum work
commitments(3) No 4,953 - 4,953 - -
----------------------------------------------------------------------------
Total $ 93,368 $ 28,931 $ 37,544 $ 22,359 $ 4,534
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs related to certain leases,
interest on long-term debt and payments made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at
September 30, 2010 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
Pursuant to the Concession agreement for Nuqra Block 1 in Egypt,
the Contractor (Joint Venture Partners) has a minimum financial
commitment of $5.0 million ($4.4 million to TransGlobe) and a work
commitment for two exploration wells in the second exploration
extension. The second, 36-month extension period commenced on July
18, 2009. The Contractor has met the second extension financial
commitment of $5.0 million in the prior periods. At the request of
the Government, the Company provided a $4.0 million production
guarantee from the West Gharib Concession prior to entering the
second extension period.
Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint
Venture Partners) has a minimum financial commitment of $2.0
million ($0.1 million to TransGlobe) to drill one exploration well
during the second exploration period. The second, 30-month
exploration period commenced on January 12, 2009. The Contractor
has entered into a farm-in agreement with TOTAL E&P Yemen which
has reduced TransGlobe's interest in the concession to 20%.
Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint
Venture Partners) has a remaining minimum financial commitment of
$3.0 million ($0.8 million to TransGlobe) for one exploration well.
The first, 36-month exploration period commenced March 8, 2008. The
Company issued a $1.5 million letter of credit (expiring November
15, 2011) to guarantee the Company's performance under the first
exploration period. The letter is secured by a guarantee granted by
Export Development Canada.
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 $7.0 million if incremental
reserve thresholds are reached in the East Hoshia (up to $5.0
million) and South Rahmi (up to $2.0 million) development leases,
to be evaluated annually. As at December 31, 2009, no additional
fees are due in 2010.
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.
MANAGEMENT STRATEGY AND OUTLOOK FOR 2010
The 2010 outlook provides information as to management's
expectation for results of operations for 2010. Readers are
cautioned that the 2010 outlook may not be appropriate for other
purposes. The Company's expected results are sensitive to
fluctuations in the business environment and may vary accordingly.
This outlook contains forward-looking statements that should be
read in conjunction with the Company's disclosure under
"Forward-Looking Statements", outlined on the first page of this
MD&A.
2010 Outlook Highlights
- Production is expected to average approximately 10,000 Bopd,
an 11% increase over the 2009 average production;
- Exploration and development capital budget increased during
the third quarter to $71.0 million from $63.0 million (allocated
84% to Egypt, 14% to Yemen and 2% to other) funded from funds flow
from operations and cash on hand; and
- Using the 10,000 Bopd production forecast and an average oil
price assumption for the remainder of the year of $75.00/Bbl, funds
flow from operations is expected to be $75.0 million for the
year.
2010 Production Outlook
TransGlobe's production guidance for 2010 is expected to average
approximately 10,000 Bopd, representing an 11% increase over the
2009 average production of 8,980 Bopd. This target includes
increased production from Hana, Hana West, Hoshia, Arta and East
Arta in Egypt, and production from the development drilling program
on Block S-1 in Yemen. Production from Egypt is expected to average
approximately 7,300 Bopd during 2010, with the balance of
approximately 2,700 Bopd coming from the Yemen properties.
TransGlobe's target exit rate for 2010 is 11,000 Bopd.
Production Forecast
2010 Guidance 2009 Actual % Change(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil per day 10,000 8,980 11
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2010 Funds Flow From Operations Outlook
This outlook was developed using the above production forecast
and an average Dated Brent oil price of $75.00/Bbl for the
remainder of the year.
2010 Funds Flow From Operations Outlook
($ million, except % change) 2010 Guidance 2009 Actual % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations(1) 75.0 45.1 66
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Due in part to higher expected prices and higher production,
funds flow from operations is expected to increase by 66% in 2010.
One of the key factors in the increased funds flow in 2010 is due
to a better oil price differential to average Dated Brent benchmark
price in Egypt. Price differentials to average Dated Brent in Egypt
narrowed from 24% in 2009 to 10% in 2010. Variations in production
and commodity prices during 2010 could significantly change this
outlook. An increase in the Dated Brent oil price of $10.00/Bbl for
the remainder of the year would increase anticipated funds flow by
approximately $3.0 million to $78.0 million for the year, while a
$10.00/Bbl decrease in the Dated Brent oil price would result in
anticipated funds flow decreasing by approximately $3.0 million to
$72.0 million for the year.
2010 Capital Budget Nine Months Ended
September 30, 2010 2010
($ million) Actual Annual Budget
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 42.5 60.0
Yemen 4.6 10.0
Corporate 0.3 1.0
----------------------------------------------------------------------------
Total 47.4 71.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The 2010 capital program is split 64:36 between development and
exploration, respectively. The Company plans to participate in 40
wells in 2010. The Company will fund its entire 2010 capital budget
from funds flow and working capital. The Company designed its 2010
budget to be flexible, allowing spending to be adjusted as
commodity prices change and forecasts are reviewed.
CHANGES IN ACCOUNTING POLICIES
New Accounting Policies
The Company adopted a share appreciation rights plan in March
2010. Under the share appreciation rights plan, all liabilities
must be settled in cash and, consequently, are classified as
liability instruments and measured at their intrinsic value less
any unvested portion. Unvested share appreciation rights accrue
evenly over the vesting period. The intrinsic value is determined
as the difference between the market value of the Company's common
shares and the exercise price of the share appreciation rights.
This obligation is revalued each reporting period and the change in
the obligation is recognized as stock-based compensation expense
(recovery).
New Accounting Standards
a) Business Combinations
In December 2008, the CICA issued Section 1582, Business
Combinations, which will replace CICA Section 1581 of the same
name. Section 1582 establishes principles and requirements of the
acquisition method for business combinations and related
disclosures. This statement applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after January 2011 with earlier application permitted. The Company
is currently evaluating the impact of this change on its
Consolidated Financial Statements.
b) Non-Controlling Interests
In December 2008, the CICA issued Sections 1601, Consolidated
Financial Statements, and 1602, Non-Controlling Interests. Section
1601 establishes standards for the preparation of consolidated
financial statements. Section 1602 provides guidance on accounting
for a non-controlling interest in a subsidiary in consolidated
financial statements subsequent to a business combination. These
standards are effective on or after the beginning of the first
annual reporting period beginning on or after January 2011 with
earlier application permitted. These standards currently do not
impact the Company as it has full controlling interest of all of
its subsidiaries.
c) International Financial Reporting Standards ("IFRS")
On February 13, 2008 the Canadian Accounting Standards Board
confirmed that effective for interim and annual financial
statements related to fiscal years beginning on or after January 1,
2011, IFRS will replace Canada's current GAAP for all publicly
accountable profit-oriented enterprises.
The Company commenced its IFRS transition project in 2008 and
has completed the project awareness and engagement phase of the
IFRS transition project. Corporate governance over the project was
established and a steering committee and project team formed. The
steering committee is comprised of members of management and
executive and is responsible for final approval of project
recommendations and deliverables to the Audit Committee and Board
of Directors. Communication, training and education are an
important aspect of the Company's IFRS conversion project. Internal
and external training and education sessions have been carried out
and will continue throughout each phase of the project.
The Company completed the diagnostic assessment phase by
performing comparisons of the differences between Canadian GAAP and
IFRS and has assessed the effects of adoption. The Company
determined that the most significant impact of IFRS conversion is
to property and equipment. IFRS does not prescribe specific oil and
gas accounting guidance other than for costs associated with the
exploration and evaluation phase. The Company currently follows
full cost accounting as prescribed in Accounting Guideline 16, Oil
and Gas Accounting - Full Cost. Conversion to IFRS will have a
significant impact on how the Company accounts for costs pertaining
to oil and gas activities, in particular those related to the
pre-exploration and development phases. In addition, the level at
which impairment tests are performed and the impairment testing
methodology will differ under IFRS, although the Company does not
expect to experience an impairment loss on oil and gas assets on
transition to IFRS. IFRS conversion will also result in other
impacts, including but not limited to the calculation of
share-based payments expense and depletion expense on oil and gas
assets, which may be significant in nature. The Company continues
to focus on analyzing and developing implementation strategies and
processes for the key IFRS transition issues identified. Where
applicable, key IFRS transition alternatives are being considered
and evaluated. The Company continues to perform accounting
assessments on less critical IFRS transition issues and has
commenced analysis of IFRS financial statement presentation and
disclosure requirements. These assessments will need to be further
analyzed and evaluated throughout the implementation phase of the
Company's project as new transactions may have different GAAP
versus IFRS treatment, and ongoing changes to IFRS may have an
impact on the conversion.
In July 2009, the International Accounting Standards Board
("IASB") approved additional exemptions that will allow entities to
allocate their oil and gas asset balance as determined under full
cost accounting to the IFRS categories of exploration and
evaluation assets and development and producing properties. Under
the exemption, exploration and evaluation assets are measured at
the amount determined under an entity's previous GAAP. For assets
in the development or production phases, the amount is also
measured at the amount determined under an entity's previous GAAP;
however, such values must be allocated to the underlying IFRS
transitional assets on a pro-rata basis using either reserve values
or reserve volumes as of the entity's IFRS transition date. This
exemption will relieve entities from significant adjustments
resulting from retrospective adoption of IFRS. The Company will
utilize this exemption.
Concurrently, the project team is working on the design,
planning and solution development phase. In this phase, the focus
is on determining the specific qualitative and quantitative impact
the application of IFRS requirements has on the Company. The
project team members continue to work with representatives from the
various operational areas to develop recommendations including
first-time adoption exemptions available upon initial transition to
IFRS. The results from the consultations with the various
operational areas are used to draft accounting policies. One of the
sections in each of the draft accounting policies is the disclosure
section which includes the financial statement disclosure as
required by IFRS. The project team has analyzed first-time adoption
exemptions and documented which exemptions it intends to utilize,
pending approval from the steering committee. These exemptions
include the oil and gas asset exemption described above, along with
the cumulative translation differences exemption which allows the
cumulative translation differences for all foreign operations to be
deemed to be zero at the date of transition, and the share-based
payments exemption which allows for IFRS requirements to apply only
to those options that were unvested at the date of transition. A
detailed implementation plan and timeline has been developed, which
also includes the development of a training plan. Furthermore, in
the last quarter of 2010 the Company will continue to work on the
development of processes and systems to ensure that IFRS
comparative data is captured, and to position it for reporting
under IFRS in 2011.
During the third quarter of 2010 the Company completed its draft
opening balance sheet under IFRS, which is as at January 1, 2010.
Transition to IFRS on the opening balance sheet date does not
result in a material adjustment to the Company's property and
equipment. The valuation and expensing of share-based payments will
be done using a tranche method under IFRS whereas under previous
GAAP entire stock option issuances were valued as a whole and
expensed on a straight line over the lives of the options. This
results in an accelerated expensing of the share-based payments as
the fair value is weighted more heavily toward the periods closer
to the date of issuance of the stock options. The adjustment for
the change in treatment of share-based payments results in an
increase in contributed surplus with a corresponding decrease in
retained earnings. Furthermore, cumulative translation adjustments
have been deemed to be zero on transition, resulting in a decrease
in accumulated other comprehensive income along with a
corresponding increase in retained earnings. The Company also
continues to work on calculating adjustments for the first three
quarters of 2010. While quantification of the impact is in progress
but cannot currently be estimated accurately, the Company expects
depletion and depreciation expense to decrease under IFRS as
compared to Canadian GAAP as a result of the depletion rate being
calculated based on proved and probable reserves under IFRS
compared to proved reserves only under previous GAAP. At this time,
any other potential adjustments to the Company's financial position
and results of operations for the first three quarters in 2010
cannot be reliably determined or estimated.
Additionally, the Company is monitoring the IASB's active
projects and all changes to IFRS prior to January 1, 2011 and will
be incorporated as required.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
TransGlobe's management designed and implemented internal
controls over financial reporting, as defined under National
Instrument 52-109 Certification of Disclosure in Issuers' Annual
and Interim Filings, of the Canadian Securities Administrators.
Internal controls over financial reporting is a process designed
under the supervision of the Chief Executive Officer and the Chief
Financial Officer and effected by the Board of Directors,
management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with Canadian generally accepted accounting principles,
including a reconciliation to U.S. generally accepted accounting
principles, focusing in particular on controls over information
contained in the annual and interim financial statements. Due to
its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements on a timely
basis. A system of internal controls over financial reporting, no
matter how well conceived or operated, can provide only reasonable,
not absolute, assurance that the objectives of the internal
controls over financial reporting are met. Also, projections of any
evaluation of the effectiveness of internal control over financial
reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or
that the degree of compliance with policies or procedures may
deteriorate.
As at the date of this report, management is not aware of any
change in the Company's internal control over financial reporting
that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
Consolidated Statements of Income (Loss) and Retained Earnings
(Unaudited - Expressed in thousands of U.S. Dollars, except per share
amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
Oil sales, net of royalties
and other $ 38,980 $ 28,495 $ 112,022 $ 74,017
Derivative gain (loss) on
commodity contracts (221) 152 68 (3,529)
Other income (loss) 11 (16) 18 16
----------------------------------------------------------------------------
38,770 28,631 112,108 70,504
----------------------------------------------------------------------------
EXPENSES
Operating 6,708 6,971 18,742 17,378
General and administrative 2,999 2,636 9,418 7,505
Foreign exchange loss (gain) (78) (286) 253 (940)
Interest on long-term debt 1,111 575 2,114 1,904
Depletion and depreciation 9,440 14,192 24,121 40,624
----------------------------------------------------------------------------
20,180 24,088 54,648 66,471
----------------------------------------------------------------------------
Income before income taxes 18,590 4,543 57,460 4,033
Income taxes - current 9,785 6,161 27,619 14,966
----------------------------------------------------------------------------
NET INCOME (LOSS) 8,805 (1,618) 29,841 (10,933)
Retained earnings, beginning
of period 101,049 79,115 80,013 88,430
----------------------------------------------------------------------------
RETAINED EARNINGS, END OF
PERIOD $ 109,854 $ 77,497 $ 109,854 $ 77,497
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) per share
Basic $ 0.13 $ (0.02) $ 0.45 $ (0.17)
Diluted $ 0.13 $ (0.02) $ 0.44 $ (0.17)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) $ 8,805 $ (1,618) $ 29,841 $ (10,933)
Other comprehensive income - - - -
----------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 8,805 $ (1,618) $ 29,841 $ (10,933)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
As at As at
September 30, 2010 December 31, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 15,412 $ 16,177
Accounts receivable 57,307 35,319
Derivative commodity
contracts 6 -
Prepaids and other 2,529 1,909
----------------------------------------------------------------------------
75,254 53,405
Restricted cash 1,890 -
Goodwill 8,180 8,180
Property and equipment 190,561 167,297
----------------------------------------------------------------------------
$ 275,885 $ 228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and
accrued liabilities $ 27,364 $ 14,879
Derivative commodity
contracts - 514
Current portion of
long-term debt - 49,799
----------------------------------------------------------------------------
27,364 65,192
Long-term debt 46,045 -
----------------------------------------------------------------------------
73,409 65,192
Commitments and
contingencies
SHAREHOLDERS' EQUITY
Share capital 76,639 66,106
Contributed surplus 5,103 6,691
Accumulated other
comprehensive income 10,880 10,880
Retained earnings 109,854 80,013
----------------------------------------------------------------------------
202,476 163,690
----------------------------------------------------------------------------
$ 275,885 $ 228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Approved on behalf of the Board:
Signed by:
Ross G. Clarkson, Director Fred J. Dyment, Director
Consolidated Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net income (loss) $ 8,805 $ (1,618) $ 29,841 $ (10,933)
Adjustments for:
Depletion and depreciation 9,440 14,192 24,121 40,624
Amortization of deferred
financing costs 345 135 523 457
Stock-based compensation 759 523 1,670 1,493
Unrealized (gain) loss on
commodity contracts 186 (629) (520) 3,720
Changes in non-cash working
capital (7,238) (11,339) (23,457) (11,156)
----------------------------------------------------------------------------
12,297 1,264 32,178 24,205
----------------------------------------------------------------------------
FINANCING
Increase in long-term debt 55,916 - 55,916 -
Repayments of long-term debt (55,916) - (55,916) (5,000)
Options surrendered for cash
payments - (13) - (13)
Issue of common shares for cash 1,662 - 7,406 16,392
Issue costs for common shares - (18) - (1,203)
Deferred financing costs (3,578) - (4,277) -
Changes in non-cash working
capital - 4 - (875)
----------------------------------------------------------------------------
(1,916) (27) 3,129 9,301
----------------------------------------------------------------------------
INVESTING
Exploration and development
expenditures (19,453) (10,599) (47,386) (28,005)
Changes in restricted cash (1,890) - (1,890) -
Changes in non-cash working
capital 4,937 214 13,204 1,669
----------------------------------------------------------------------------
(16,406) (10,385) (36,072) (26,336)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH (6,025) (9,148) (765) 7,170
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 21,437 23,952 16,177 7,634
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 15,412 $ 14,804 $ 15,412 $ 14,804
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental Disclosure of Cash
Flow Information
Cash interest paid $ 766 $ 440 $ 1,591 $ 1,447
Cash taxes paid 9,785 6,161 27,619 14,966
Cash is comprised of cash on
hand and balances with banks 15,412 14,804 15,412 14,804
Cash equivalents - - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SEGMENTED INFORMATION
Egypt Yemen Total
----------------------------------------------------------------------------
Nine Months Ended September 30
(000s) 2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil sales, net of
royalties and
other $ 81,894 $ 44,296 $30,128 $ 29,721 $ 112,022 $ 74,017
Segmented
expenses
Operating 11,800 9,695 6,942 7,683 18,742 17,378
Depletion and
depreciation 18,186 33,150 5,752 7,331 23,938 40,481
Income taxes 20,461 9,658 7,158 5,308 27,619 14,966
----------------------------------------------------------------------------
Total segmented
expenses 50,447 52,503 19,852 20,322 70,299 72,825
----------------------------------------------------------------------------
Segmented income
(loss) $ 31,447 $ (8,207) $10,276 $ 9,399 41,723 1,192
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative loss
(gain) on
commodity
contracts (68) 3,529
General and
administrative 9,418 7,505
Interest on
long-term debt 2,114 1,904
Depreciation 183 143
Foreign exchange
loss (gain) 253 (940)
Other income (18) (16)
----------------------------------------------------------------------------
Total
non-segmented
expenses 11,882 12,125
----------------------------------------------------------------------------
Net income (loss) $ 29,841 $ (10,933)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration and
development $ 42,484 $ 21,491 $ 4,636 $ 6,345 $ 47,120 $ 27,836
Corporate 266 169
----------------------------------------------------------------------------
Total capital
expenditures $ 47,386 $ 28,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt Yemen Total
----------------------------------------------------------------------------
Three Months Ended September 30
(000s) 2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil sales, net of
royalties
and other $ 29,552 $17,755 $ 9,428 $ 10,740 $ 38,980 $ 28,495
Segmented
expenses
Operating 4,313 4,241 2,395 2,730 6,708 6,971
Depletion and
depreciation 7,468 11,747 1,893 2,394 9,361 14,141
Income taxes 7,447 3,874 2,338 2,287 9,785 6,161
----------------------------------------------------------------------------
Total segmented
expenses 19,228 19,862 6,626 7,411 25,854 27,273
----------------------------------------------------------------------------
Segmented income
(loss) $ 10,324 $(2,107) $ 2,802 $ 3,329 $ 13,126 $ 1,222
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative loss
(gain) on
commodity
contracts 221 (152)
General and
administrative 2,999 2,636
Interest on
long-term debt 1,111 575
Depreciation 79 51
Foreign exchange
loss (gain) (78) (286)
Other income
(loss) (11) 16
----------------------------------------------------------------------------
Total
non-segmented
expenses 4,321 2,840
----------------------------------------------------------------------------
Net income (loss) $ 8,805 $ (1,618)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration and
development $ 16,297 $ 8,559 $ 2,964 $ 2,029 $ 19,261 $ 10,588
Corporate 192 11
----------------------------------------------------------------------------
Total capital
expenditures $ 19,453 $ 10,599
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sept. 30 Dec. 31 Sept. 30 Dec. 31 Sept. 30 Dec. 31
2010 2009 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and
equipment $143,376 $119,079 $46,370 $ 47,486 $189,746 $166,565
Goodwill 8,180 8,180 - - 8,180 8,180
Other 58,982 41,347 8,314 5,877 67,296 47,224
----------------------------------------------------------------------------
Segmented assets $210,538 $168,606 $54,684 $ 53,363 265,222 221,969
Non-segmented
assets 10,663 6,913
----------------------------------------------------------------------------
Total assets $275,885 $228,882
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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. 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. 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.
Contacts: TransGlobe Energy Corporation Scott Koyich Investor
Relations 403.264.9888 investor.relations@trans-globe.com
www.trans-globe.com
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