TransGlobe Energy Corporation (TSX: TGL) (NASDAQ: TGA)
("TransGlobe" or the "Company") is pleased to announce its
financial and operating results for the three and nine-month
periods ended September 30, 2008. All dollar values are expressed
in United States dollars unless otherwise stated. The conversion to
barrels of oil equivalent ("Boe") of natural gas to oil is made on
the basis of six thousand cubic feet of natural gas being
equivalent to one barrel ("Bbl") of crude oil. With the sale of
TransGlobe's Canadian assets on April 30, the results from the
Canadian segment of operations are presented as "discontinued
operations" in this document.
HIGHLIGHTS
- Cash flow from continuing operations totaled $16.8 million
($0.28/share), 81 percent higher than in the prior-year
quarter;
- Net income of $24.8 million ($0.41/share), significantly
higher as a result of unrealized gains on derivative contracts;
- Current debt-to-cash-flow ratio of 0.9 times (trailing 12
months);
- 300,000 shares repurchased at an average price of C$3.87 per
share under the Normal Course Issuer Bid;
- Acquired additional 25 percent interest in certain West Gharib
leases for $18.0 million;
- Average production from continuing operations of 6,935 Bopd in
the third quarter; and
- Potential new oil discovery at Hana West.
Corporate Summary
TransGlobe's cash flow from continuing operations in the third
quarter amounted to $16.8 million. Cash flows for the first nine
months of 2008 total $53.1 million. TransGlobe anticipates total
cash flow from operations for all of 2008 to be approximately $61.0
million, assuming an average Dated Brent oil price of $60/Bbl for
the fourth quarter. TransGlobe's debt was $58.0 million at the end
of the third quarter. The debt-to-cash-flow ratio currently stands
at 0.9:1 (trailing 12 months).
TransGlobe's ongoing derivative contracts were marked to
significantly lower future oil prices at the end of the third
quarter compared with the second quarter - $98.13/Bbl for Dated
Brent oil at September 30 versus $138.86/Bbl at June 30. The
Company recorded unrealized derivative gains for the reporting
period of $17.5 million. This resulted in third-quarter net income
of $24.8 million or $0.41 per share. TransGlobe recorded a realized
cash loss on its commodity contracts of $2.6 million for the third
quarter. At October 31, 2008, Dated Brent oil closed at
$65.32/Bbl.
TransGlobe announced a Normal Course Issuer Bid ("NCIB") on July
30 and bought back 300,000 shares at an average price of C$3.87 per
share during the third quarter.
The Company increased its position in Egypt by acquiring an
additional 25 percent interest in certain West Gharib leases for
total consideration of $18.0 million and an additional interest in
the Nuqra Block at no cost due to the departure of a partner
company. The acquisition at West Gharib was funded from
TransGlobe's credit facility and working capital.
Production from continuing operations in the third quarter
averaged 6,935 barrels of oil per day ("Bopd"), approximately five
percent lower than in the second quarter. The lower production
levels are mainly due to equipment shortages and workovers in West
Gharib that occurred during the reporting period. The Company
continues to make good progress on resolving these issues and
remains on target to achieve its production guidance of 7,450 Boepd
for the year 2008.
During these turbulent times in the financial markets it is
important to note several strengths that set TransGlobe apart and
assure its continued existence as a growth-oriented, successful
going concern:
- TransGlobe has sufficient cash flow and working capital to
finance ongoing operations and possesses great flexibility with
respect to its drilling program.
- All of TransGlobe's capital expenditures are funded from cash
flow; there is no requirement for the Company to raise additional
funds in the market.
- The Company's debt is carried by a syndicate of four
world-renowned financial institutions none of which have reported a
negative effect on their business from the current crisis in the
banking world.
Companies such as TransGlobe that have low debt levels, strong
cash generation from operations and access to cash and cash
equivalents will be well positioned to manage through the current
financial crisis. Consequently, TransGlobe is continuing on its
path to achieve the mid-term objective of production levels of
10,000 Bopd by 2010.
A conference call to discuss TransGlobe's third quarter results
presented in this report will be held November 5, 2008 at 2:30 PM
Mountain Time (4:30 PM Eastern Time) and is accessible to all
interested parties by dialing 1-416-641-6108 or toll-free
1-866-226-1792 (see also TransGlobe's news release dated October
29, 2008). The webcast may be accessed at
http://events.onlinebroadcasting.com/transglobe/110508/index.php.
FINANCIAL AND OPERATING RESULTS
($000s, except per share, price, volume amounts and % change)
Three Months Ended Nine Months Ended
September 30 September 30
-----------------------------------------------------
Financial 2008 2007 Change 2008 2007 Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil and gas revenue 66,707 32,240 107% 204,410 89,009 130%
Oil and gas revenue,
net of royalties
and other 36,577 20,764 76% 114,121 58,568 95%
Derivative gain
(loss) on commodity
contracts 14,890 (1,033) 1,541% (9,455) (1,187) (697)%
Operating expense 5,088 3,345 52% 15,778 9,942 59%
General and
administrative
expense 2,066 1,449 43% 7,203 3,981 81%
Depletion,
depreciation and
accretion expense 8,962 6,837 31% 28,811 22,549 28%
Income taxes 9,751 2,815 246% 28,475 7,383 286%
Cash flow from
operations(i) 16,775 13,373 25% 53,133 38,197 39%
Basic per share 0.28 0.22 0.89 0.64
Diluted per share 0.27 0.22 0.88 0.63
Net income 24,790 5,198 377% 23,883 13,521 77%
Basic per share 0.41 0.09 0.39 0.23
Diluted per share 0.41 0.08 0.39 0.22
Capital expenditures 18,755 6,212 202% 30,547 26,469 15%
Acquisitions 17,552 68,030 (74)% 62,011 68,030 (9)%
Long-term debt 57,127 58,109 (2)% 57,127 58,109 (2)%
Common shares
outstanding
Basic (weighted
average) 59,784 59,554 0% 59,757 59,584 0%
Diluted (weighted
average) 60,771 60,421 1% 60,624 60,576 0%
Total assets 234,501 202,718 16% 234,501 202,718 16%
----------------------------------------------------------------------------
(i) Cash flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.
Operating
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total production
(Boepd) (6:1)(i) 6,935 5,227 33% 7,493 5,252 43%
Total sales (Boepd)
(6:1)(i) 6,935 5,227 33% 7,493 5,306 41%
Oil and liquids
(Bopd) 6,935 4,216 64% 7,001 4,306 63%
Average price
($ per Bbl) 104.55 74.02 41% 102.79 66.20 55%
Gas (Mcfpd) - 6,067 - 2,955 6,003 (51)%
Average price
($ per Mcf) - 6.19 - 8.78 6.62 33%
Operating expense
($ per Boe) 7.97 6.96 15% 7.68 6.86 12%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) The differences in production and sales volumes result from inventory
changes.
Financial from Continuing Operations (excludes Canadian Operations)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil and gas revenue
from continuing
operations 66,707 26,326 153% 193,387 71,382 171%
Oil and gas revenue,
net of royalties and
other, from
continuing
operations 36,577 15,793 132% 105,466 44,028 140%
Operating expense
from continuing
operations 5,088 2,490 104% 13,476 6,863 96%
Depletion,
depreciation and
accretion expense
from continuing
operations 8,962 3,739 140% 26,133 13,982 87%
Cash flow from
continuing
operations(i) 16,775 9,257 81% 46,780 26,736 75%
Basic per share 0.28 0.16 0.78 0.45
Diluted per share 0.27 0.15 0.77 0.44
Net income from
continuing
operations 24,787 4,166 495% 15,691 10,685 47%
Basic per share 0.41 0.07 0.26 0.18
Diluted per share 0.41 0.07 0.26 0.18
Capital expenditures 18,755 3,036 518% 29,933 17,589 70%
----------------------------------------------------------------------------
(i) Cash flow from continuing operations is a non-GAAP measure that
represents cash generated from continuing operating activities before
changes in non-cash working capital.
Operating from Continuing Operations (excludes Canadian Operations)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total production
from continuing
operations (Bopd)
(6:1) 6,935 3,830 81% 6,847 3,895 76%
Total sales (Bopd)
(6:1) 6,935 3,830 81% 6,847 3,895 76%
Oil and liquids
(Bopd) 6,935 3,830 81% 6,847 3,895 76%
Average price
($ per Bbl) 104.55 74.71 40% 103.08 66.89 54%
Operating expense
($ per Bbl) 7.97 7.07 13% 7.18 6.43 12%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OPERATIONS UPDATE
West Gharib, Arab Republic of Egypt (100% working interest,
TransGlobe operated)
Operations and Exploration
On August 18, 2008 TransGlobe acquired the remaining partner's
25 percent financial interest in the non-Hana development leases.
TransGlobe now holds 100% working interest in the West Gharib PSC,
which consists of nine development leases. This includes the East
Hoshia development lease, which was approved in January 2008.
Four wells were drilled during the third quarter, resulting in
three oil wells (at Arta, Hana and South Rahmi) and one dry
exploration well on the West Hoshia development lease. The deep
exploration well at Hana did not encounter any hydrocarbons below
the main Hana field. The well was completed as an oil well in the
Kareem formation. Two wells were drilling at the end of the
quarter, which resulted in two additional oil wells (Hana and South
Rahmi).
The Company expanded the exploration and development drilling
program by adding a second drilling rig in July. Both rigs are
currently active, with one rig completing a new exploration
prospect at Hana and the second rig currently drilling an
exploration well at East Hoshia. The Hana 18 exploration well was
targeting a potential new pool to the west of the Hana field. The
well was drilled to a total depth of 6,440 feet and will be cased
as a potential multi-zone new pool (Hana West) discovery later this
week. Hana 18 has encountered up to 260+ feet of potential oil pay
in the Miocene sandstones, based on drilling samples, open-hole
logs and down-hole pressure tests. The well will be production
tested over the next three to four weeks. It is expected that an
additional four to six wells will be required to delineate the
potential new pool. The drilling rig will move to a development
location in the Hana main field prior to returning to Hana West for
additional delineation drilling. The East Hoshia exploration well
is targeting a deeper (9,000 feet) multi-zone prospect with
potential reserves of six to 10 million barrels. This second well
is scheduled to reach total depth near the end of November.
In addition to the expanded drilling program, the Company
commenced a large new 362 km2 3-D seismic acquisition program in
the third quarter. Field acquisition was completed on October 10,
and processing is underway. The new 3-D seismic program extends
northwest from the East Hoshia development lease to the East Arta
development lease, covering five development leases. Preliminary
mapping has generated several additional new leads and prospects.
It is expected that the processed 3-D will be available for
interpretation and mapping in late December. The new 3-D area is
expected to be a primary focus area for new exploration and
development locations in the 2009 and 2010 drilling programs.
The Company identified the Hana and Hoshia fields as
waterflood/enhanced recovery projects with extended injection tests
scheduled to commence mid-2008. Initial water injection commenced
at Hana in late July and at Hoshia in early September. A decision
on the full-field enhanced recovery project could be reached by
year-end, assuming the test injection projects support the
reservoir simulation work. These projects could significantly
increase the recoverable reserves assigned to the respective
pools.
Production
Production from West Gharib averaged 3,278 Bopd (3,096 Bopd to
TransGlobe) during the quarter, representing a 13% decrease in
total field production over the previous quarter. These production
decreases are primarily due to a number of pump changes and access
to workover rigs, which deferred oil production during the quarter.
A second workover rig was contracted in late August to support the
increased drilling and well optimization activity at West
Gharib.
Production averaged 3,123 Bopd during October (100% TransGlobe),
which is lower due to a number of pump-related issues primarily in
the Hoshia field. Good progress has been made on resolving these
issues in October and it is expected that production will be
restored to the 3,400+ Bopd level later this week.
Quarterly West Gharib Production (Bopd)
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross field production rate 3,278 3,758 3,160 2,932
----------------------------------------------------------------------------
TransGlobe effective working interest 3,096 3,352 2,432 1,594
----------------------------------------------------------------------------
TransGlobe net (after royalties) 1,872 1,907 1,389 971
----------------------------------------------------------------------------
TransGlobe net (after royalties and tax)
(i) 1,367 1,311 958 714
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Under the terms of the West Gharib PSC, royalties and taxes are paid
out of the government's share of production sharing oil.
Nuqra Block 1, Arab Republic of Egypt (71.43% working interest,
TransGlobe operated)
Operations and Exploration
TransGlobe Petroleum Egypt Inc. (a wholly-owned subsidiary)
increased its working interest in the Nuqra #1 joint venture to
71.43% from 50% effective June 30, 2008, subject to government
approval. The increased working interest represents the Company's
proportionate share of a departing joint venture partner's
interest. Effective June 30, 2008, the Company will pay 88.57% of
costs up to first oil production at which time the Company will pay
71.43% of costs going forward. Prior to June 30, the Company had
paid 60% of the costs to first oil production with a 50% working
interest. The Company will recover carried costs from the remaining
partners' share of any future production.
TransGlobe has identified a prospect that appears to be similar
to the oil discovery announced by a competitor at Al Baraka #1
& #2 on the Kom Ombo Concession, located immediately west of
the Nuqra Concession. One exploration well was budgeted for 2008 on
a contingency basis and has now been deferred until 2009. The
Company has discussed rig sharing possibilities with the adjacent
operators to facilitate a potential 2009 drilling program.
YEMEN EAST- Masila Basin
Block 32, Republic of Yemen (13.81087% working interest)
Operations and Exploration
Two new wells were drilled during the third quarter. An
exploration well located approximately three kilometers east of
Tasour was abandoned and an oil well was drilled on the eastern
boundary of the Godah field.
A six-inch gas pipeline connecting the Godah production facility
to the Tasour Central Production Facility ("CPF") was constructed
to supply associated gas production from the Godah pool to the
Tasour CPF for fuel gas. It is expected that up to 60% of diesel
being consumed for power generation can be replaced with natural
gas, resulting in lower operating costs. The fuel-gas project
became partially operational in July and will be completed by
November with burner conversion of the diesel topping plant in
October.
Production
Production from Block 32 averaged 7,275 Bopd (1,005 Bopd to
TransGlobe) during the quarter, essentially flat with the previous
quarter. Production averaged approximately 6,835 Bopd (944 Bopd to
TransGlobe) during October.
Quarterly Block 32 Production (Bopd)
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross production rate 7,275 7,511 7,482 7,582
----------------------------------------------------------------------------
TransGlobe working interest 1,005 1,037 1,033 1,047
----------------------------------------------------------------------------
TransGlobe net (after royalties) 514 521 579 620
----------------------------------------------------------------------------
TransGlobe net (after royalties and tax)(i) 378 377 455 478
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) 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 (33% working interest)
Operations and Exploration
Field acquisition of 410 km2 of 3-D seismic and 100 km of 2-D
seismic was completed at the end of March 2008. The seismic data
was processed and interpreted in the third quarter. The first
exploration well on the new 3-D seismic, Seer #1, is targeting a 20
million barrel (gross recoverable, unrisked) Qishn prospect. The
drilling rig has been mobilized to the location, with drilling
expected to commence in the next few days.
The Seer #1 exploration well will satisfy the remaining
commitment of one exploration well during the first exploration
period, which was extended to January 2009. The Block 72 joint
venture partnership has agreed to enter the second exploration
period and has budgeted two additional exploration wells for 2009,
which would also satisfy the second exploration period commitments.
Under the terms of the Block 72 PSA, there are no scheduled
relinquishments at the end of the first exploration period.
Block 84, Republic of Yemen (33% working interest)
Operations and Exploration
The Production Sharing Agreement ("PSA") for Block 84 was signed
with the Ministry of Oil and Minerals ("MOM") on April 13, 2008.
The PSA is now before Parliament for final approval and
ratification, which is expected to occur later this year. A 400+
km2 3-D seismic acquisition program is planned for Block 84
following ratification of the PSA.
Block 84 encompasses 731 km2 (approximately 183,000 acres) and
is located in the Masila Basin adjacent to Nexen Inc.'s Masila
Block where more than one billion barrels of oil have been produced
to date. The Block 84 joint venture group has committed to a 3-D
seismic acquisition program and the drilling of four exploration
wells during the first exploration period of 42 months.
YEMEN WEST- Marib Basin
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
The operator is currently finalizing contracts for a drilling
rig and services for Block S-1. Drilling is expected to commence in
November/December starting with three horizontal sidetracks in the
An Nagyah field. The 2009 development and exploration drilling
program for Block S-1 and Block 75 will be finalized during final
budget discussions later this fall.
Gas injection commenced in the western portion of the An Nagyah
field during the first quarter to improve production performance
and increase recoverable reserves. In addition, the operator of the
Block S-1 joint venture group has initiated discussions with the
MOM regarding a potential development project to produce and sell
known deposits of gas at the An Naeem discovery on Block S-1. At
present, TransGlobe has not booked the significant gas reserves
associated with the An Naeem discovery. An approved gas development
plan is required to proceed with recognizing the reserves and with
development.
A combined 3-D seismic program is planned to commence in late
2008 to define additional exploration drilling locations on the
northwest portion of Block S-1 and the north portion of Block
75.
Production
Production from Block S-1 averaged 11,336 Bopd (2,834 Bopd to
TransGlobe) during the third quarter, essentially flat with the
previous quarter. Production averaged approximately 11,328 Bopd
(2,832 Bopd to TransGlobe) during October.
Quarterly Block S-1 Production (Bopd)
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross field production rate 11,336 11,573 11,378 10,768
----------------------------------------------------------------------------
TransGlobe working interest 2,834 2,894 2,844 2,692
----------------------------------------------------------------------------
TransGlobe net (after royalties) 1,450 1,453 1,593 1,469
----------------------------------------------------------------------------
TransGlobe net (after royalties and tax)
(i) 1,067 1,051 1,253 1,153
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Under the terms of the Block 32 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. A combined 3-D seismic program (Block S-1 and Block
75) is planned to commence in late 2008.
Block 75 encompasses 1,050 km2 (approximately 262,500 acres) and
is located in the Marib Basin adjacent to Block S-1. The Block 75
joint venture group has committed to carry out a 3-D seismic
acquisition program and the drilling of one exploration well during
the first exploration period of 36 months.
CANADA
Operations and Exploration
The Canadian assets were sold on April 30, 2008. The Canadian
segment of operations is presented as "discontinued
operations".
Quarterly Canadian Production (Boepd)
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Q-3 Q-2 Q-1 Q-4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TransGlobe working interest - 423 1,523 1,504
----------------------------------------------------------------------------
TransGlobe net (after royalties) - 331 1,197 1,250
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 4, 2008
Management's Discussion and Analysis ("MD&A") should be read
in conjunction with the unaudited interim consolidated financial
statements for the three and nine months ended September 30, 2008
and 2007 and the audited consolidated financial statements and
MD&A for the year ended December 31, 2007 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
available on SEDAR at www.sedar.com. The Company's annual report on
Form 40-F can be found in the Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") database at www.sec.gov.
Forward-looking Information
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 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.
Use of Barrel of Oil Equivalents
The calculation of barrels of oil equivalent ("Boe") is based on
a conversion rate of six thousand cubic feet of natural gas ("Mcf")
to one barrel ("Bbl") of crude oil. Boe's may be misleading,
particularly if used in isolation. A Boe conversion ratio of 6
Mcf:1 Bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead.
Non-GAAP Measures
Cash Flow from Operations
This document contains the term "cash flow from operations" and
"cash flow from continuing 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"). Cash flow from
operations and cash flow from continuing operations are non-GAAP
measures that represent 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. Cash flow from operations and cash flow from
continuing operations may not be comparable to similar measures
used by other companies.
Reconciliation of Cash Flow from Operations and Cash Flow from Continuing
Operations
Three Months Ended Nine Months Ended
September 30 September 30
-----------------------------------------------------
($000s) 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating
activities 20,652 8,046 46,541 30,835
Changes in non-cash
working capital from
continuing operations (3,708) 3,719 6,700 6,445
Changes in non-cash working
capital from discontinued
operations (169) 1,608 (108) 917
----------------------------------------------------------------------------
Cash flow from operations 16,775 13,373 53,133 38,197
Less: Cash flow from
discontinued operations - 4,116 6,353 11,461
----------------------------------------------------------------------------
Cash flow from continuing
operations 16,775 9,257 46,780 26,736
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback
Netback is a non-GAAP measure that represents revenue net of
royalties, 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.
SELECTED QUARTERLY FINANCIAL INFORMATION
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000s, except per share,
price and volume amounts) Q-3 Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Operations
Average sales volumes (Boepd) 6,935 7,706 7,845 6,837 5,227
Average price ($/Boe) 104.55 110.21 84.63 75.83 67.04
Oil and gas sales 66,707 77,283 60,420 47,699 32,240
Oil and gas sales, net of
royalties and other 36,577 41,629 35,915 29,343 20,764
Cash flow from operations(i) 16,775 18,485 17,873 13,944 13,373
Cash flow from operations per
share
- Basic 0.28 0.31 0.30 0.23 0.22
- Diluted 0.27 0.31 0.30 0.23 0.22
Net income (loss) 24,790 (5,365) 4,458 (719) 5,198
Net income (loss) per share
- Basic 0.41 (0.09) 0.07 (0.02) 0.09
- Diluted 0.41 (0.09) 0.07 (0.01) 0.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Continuing Operations
Average sales volumes (Bopd) 6,935 7,283 6,322 5,333 3,830
Average price from continuing
operations ($/Bbl) 104.55 112.59 90.49 83.14 74.71
Oil and gas sales 66,707 74,616 52,064 40,788 26,326
Oil and gas sales, net of
royalties and other 36,577 39,541 29,348 23,600 15,793
Cash flow from continuing
operations(i) 16,775 16,841 13,164 9,334 9,257
Cash flow from continuing
operations per share
- Basic 0.28 0.28 0.22 0.16 0.16
- Diluted 0.27 0.28 0.22 0.15 0.15
Net income (loss) 24,787 (11,449) 2,353 (2,319) 4,166
Net income (loss) per share
- Basic 0.41 (0.19) 0.04 (0.04) 0.07
- Diluted 0.41 (0.19) 0.04 (0.04) 0.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets 234,501 205,535 249,401 204,219 202,718
Cash and cash equivalents 8,593 11,673 11,935 12,729 10,547
Total long-term debt, including
current portion 57,127 42,197 95,601 56,685 61,654
Debt-to-cash flow ratio(ii) 0.9 0.7 1.6 1.1 1.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Cash flow from operations and cash flow from continuing operations are
non-GAAP measures that represent cash generated from operating
activities and continuing operating activities, respectively, before
changes in non-cash working capital.
(ii) Calculated on a 12-month rolling basis ending on the quarter shown.
- The Company's financial position remains strong, with the
ability to finance capital programs with cash flow from continuing
operations.
- Record net income per share from operations and continuing
operations, mainly as a result of a $14.9 million gain on
derivative contracts.
- Strong commodity prices in the quarter.
- Production from operations remains consistent with 2008
guidance. Production from continuing operations has decreased from
Q2-2008 due to an increased number of workovers in the quarter in
Egypt and natural declines in Yemen.
BUSINESS ENVIRONMENT
The Company's financial results are significantly influenced by
fluctuations in commodity prices, including price differentials.
The following table shows select market benchmark prices and
foreign exchange rates:
2008 2007
Q-3 Q-2 Q-1 Q-4 Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dated Brent average oil price
($/Bbl) 114.78 121.38 96.90 89.03 74.87
U.S./Canadian Dollar average
exchange rate 1.042 1.010 1.004 0.982 1.045
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The price of Dated Brent oil averaged $114.78/Bbl in Q3-2008, an
increase of 53% from the Q3-2007 price of $74.87/Bbl. The price of
Dated Brent oil reached a record high in July 2008. However,
financial market instability and a potential worldwide recession
resulted in a steep decline in the price of Dated Brent oil in
August, September, and into October, 2008. The closing price of
Dated Brent oil at October 31, 2008 was $65.32/Bbl and the closing
exchange rate was 1.205.
The current global financial crisis has reduced liquidity in
financial markets, restricted access to financing and caused
significant volatility in commodity prices. These will impact the
performance of the economy going forward. Companies, such as
TransGlobe, with low debt levels, strong cash generation from
operations, and availability of cash and cash equivalents will be
well positioned to manage through the crisis.
GUIDANCE
Nine Months Ended Twelve Months Ended
September 30, 2008 December 31, 2008
----------------------------------------------------------------------------
Actual Actual
total continuing
operations operations Guidance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production (Boepd) 7,493 6,847 7,450
Capital expenditures
($millions)(i) 30.7 29.9 38.0
----------------------------------------------------------------------------
Dated Brent oil prices
($/Bbl) 111.02 111.02 100.00(ii) 80.00(ii) 60.00(ii)
----------------------------------------------------------------------------
Cash flow from operations
($millions) 53.1 46.8 69.0 66.0 61.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Excluding acquisitions.
(ii) Dated Brent oil price for Q4-2008.
The production and cash flow in the 2008 guidance includes four
months of production from Canadian operations (sold effective April
30, 2008).
Due to the extreme volatility in the oil prices this year and
especially since the end of Q3-2008, management has provided
readers with various price scenarios and their potential impact on
the Company's cash flow from operations for the year. Despite
significantly lower commodity prices since the end of Q3-2008,
management still expects record cash flow from operations for the
twelve months ended December 31, 2008.
The 2008 Guidance provides information as to management's
expectation for results of operations for 2008. Readers are
cautioned that the 2008 Guidance 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 guidance contains forward-looking statements that should be
read in conjunction with the Company's disclosure under
"Forward-Looking Statements" included on the first page of the
MD&A.
CORPORATE ACQUISITION
In the first quarter of 2008, the Company acquired all the
shares of GHP Exploration (West Gharib) Ltd. ("GHP") for total
consideration of $40.2 million, plus transaction costs and working
capital adjustments, effective September 30, 2007. This acquisition
was funded by bank debt and cash on hand. GHP holds a 30% working
interest in the West Gharib Concession area in the Arab Republic of
Egypt ("Egypt"). With the acquisition of GHP, the Company holds a
100% working interest in the West Gharib Production Sharing
Concession ("PSC"), with a working interest of 100% in the Hana
development lease and an effective working interest of 75% in the
eight non-Hana development leases. TransGlobe is the operator of
the West Gharib Concession.
The adjustment date of the acquisition is September 30, 2007,
with all changes in working capital to February 5, 2008 (the
closing date), including oil production from September 30, 2007 to
February 5, 2008, recorded as a purchase price adjustment. Oil
produced after February 5, 2008 is recorded as TransGlobe
production.
PROPERTY ACQUISITION
On August 18, 2008, TransGlobe completed an oil and gas property
acquisition in Egypt for the 25% financial interest in the eight
non-Hana development leases. The total cost of the acquisition was
$18.0 million, subject to closing adjustments to the effective date
of June 1, 2008. In addition, the Company could pay up to $7.0
million if incremental reserve thresholds are reached in the East
Hoshia (up to $5.0 million) and in the South Rhami (up to $2.0
million) development leases. As a result of this acquisition,
TransGlobe now holds a 100% working interest in the West Gharib
Concession in Egypt. Production from this acquisition since August
18, 2008 has been included in the quarterly production for the
Company.
DISCONTINUED OPERATIONS
TransGlobe entered into an agreement with a third party for the
sale of its Canadian segment of operations to allow the Company to
focus on the development of its Middle East/North Africa assets.
The sale price of the assets was $56.7 million, subject to normal
closing adjustments. The sale closed on April 30, 2008.
Accordingly, the Canadian segment has been reclassified as
discontinued operations in the Consolidated Financial Statements.
This is further discussed in the MD&A section entitled
"Operating Results From Discontinued Operations".
Q3-2008 TO Q3-2007 NET INCOME VARIANCES
$ Per Share
$000s Diluted
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q3-2007 net income 5,198 0.08
----------------------------------------------------------------------------
Cash items
Volume variance 29,847 0.49
Price variance 10,534 0.17
Royalties (19,596) (0.32)
Expenses:
Operating (2,599) (0.04)
Realized derivative loss (2,649) (0.04)
Cash general and administrative (437) (0.01)
Current income taxes (6,923) (0.11)
Realized foreign exchange loss (11) -
Interest on long-term debt (646) (0.01)
Settlement of asset retirement obligations 21 -
Other income (23) -
Cash flow from discontinued operations (4,112) (0.07)
----------------------------------------------------------------------------
Total cash items variance 3,406 0.06
----------------------------------------------------------------------------
Non-cash items
Unrealized derivative gain 18,572 0.31
Depletion, depreciation and accretion (5,225) (0.09)
Stock-based compensation (180) -
Settlement of asset retirement obligations (21) -
Amortization of deferred financing costs (45) -
Non-cash income from discontinued operations 3,085 0.05
----------------------------------------------------------------------------
Total non-cash items variance 16,186 0.27
----------------------------------------------------------------------------
Q3-2008 net income 24,790 0.41
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income increased $19.6 million in Q3-2008 compared with
Q3-2007 mainly as a result of higher volumes, higher prices and a
change in the unrealized derivative gain of $18.6 million in the
quarter ended September 30, 2008.
OPERATING RESULTS AND NETBACK
Daily Volumes, Working Interest Before Royalties and Other
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt - Oil sales(i) Bopd 3,096 118 2,960 40
Yemen - Oil sales Bopd 3,839 3,712 3,887 3,855
----------------------------------------------------------------------------
Total continuing operations
- daily sales volumes Bopd 6,935 3,830 6,847 3,895
----------------------------------------------------------------------------
Canada - Oil and liquids
sales(ii) Bopd - 386 154 411
- Gas sales(ii) Mcfpd - 6,067 2,955 6,003
----------------------------------------------------------------------------
Canada Boepd - 1,397 646 1,411
----------------------------------------------------------------------------
Total Company
- daily sales volumes Boepd 6,935 5,227 7,493 5,306
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Egypt includes the operating results of GHP for the period February 5,
2008 to September 30, 2008 and the property acquisition for the period
from August 18, 2008 to September 30, 2008. In that period, production
averaged 1,044 Bopd and 382 Bopd, respectively, for a year-to-date
average of 910 Bopd and 61 Bopd, respectively.
(ii) Canada includes the operating results for the period January 1, 2008 to
April 30, 2008. In that period, production from the Canadian assets
averaged 1,463 Boepd.
Netback from Continuing Operations
Consolidated
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 193,387 103.08 71,382 66.89
Royalties and other 87,921 46.86 27,354 25.63
Current taxes 28,557 15.22 7,325 6.86
Operating expenses 13,476 7.18 6,863 6.43
----------------------------------------------------------------------------
Netback 63,433 33.82 29,840 27.97
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 66,707 104.55 26,326 74.71
Royalties and other 30,130 47.22 10,533 29.89
Current taxes 9,751 15.28 2,828 8.03
Operating expenses 5,088 7.97 2,490 7.07
----------------------------------------------------------------------------
Netback 21,738 34.08 10,475 29.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Segmented Net Operating Results
In Q3-2008, the Company had continuing operations in two
geographic areas, segmented into the Arab Republic of Egypt and the
Republic of Yemen ("Yemen"), and discontinued operations in Canada.
The MD&A for the continuing operations will follow. Please
refer to "Operating Results from Discontinued Operations" for the
MD&A on the Canadian segment.
Egypt
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007(i)
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 74,886 92.33 617 56.73
Royalties and other 31,300 38.59 237 21.84
Current taxes 12,929 15.94 113 10.41
Operating expenses 3,951 4.87 25 2.33
----------------------------------------------------------------------------
Netback 26,706 32.93 242 22.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Represents five days of production.
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007(i)
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 26,275 92.25 617 56.73
Royalties and other 10,386 36.46 237 21.84
Current taxes 4,290 15.06 113 10.41
Operating expenses 1,914 6.72 25 2.33
----------------------------------------------------------------------------
Netback 9,685 34.01 242 22.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Represents five days of production.
The netback for Egypt for Q3-2008 includes average quarterly
production of 183 Bopd from the property acquisition that closed on
August 18, 2008, and 983 Bopd from the GHP acquisition that closed
on February 5, 2008. The average selling price during the quarter
for this production was $92.25/Bbl, which represents a
gravity/quality adjustment of approximately $22.53/Bbl to an
average Dated Brent oil price for the period of $114.78/Bbl.
- Royalties and taxes as a percentage of revenue increased to
59% in the first nine months of 2008, compared to 57% in the same
period of 2007. Royalty and tax rates fluctuate in Egypt due to
changes in the excess cost oil whereby the PSC allows for recovery
of operating and capital costs through a reduction in government
take.
- Operating costs for the three and nine months ended September
30, 2008 have increased to $6.72/Bbl and $4.87/Bbl, respectively
(2007 - $2.33/Bbl and $2.33/Bbl, respectively). The increased
operating costs are due to a high number of workovers on the West
Gharib PSC, higher diesel costs and increased staffing.
Yemen
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 118,501 111.26 70,765 67.24
Royalties and other 56,621 53.16 27,117 25.77
Current taxes 15,628 14.67 7,212 6.85
Operating expenses 9,525 8.94 6,838 6.50
----------------------------------------------------------------------------
Netback 36,727 34.49 29,598 28.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 40,432 114.48 25,709 75.29
Royalties and other 19,744 55.90 10,296 30.15
Current taxes 5,461 15.46 2,715 7.95
Operating expenses 3,174 8.99 2,465 7.22
----------------------------------------------------------------------------
Netback 12,053 34.13 10,233 29.97
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Yemen, netback increased 18% and 24% in the three and nine
month periods ending September 30, 2008, respectively, compared
with the same periods of 2007, primarily as a result of oil sales
increasing by 57% and 67%, respectively. The increase in sales was
mainly due to oil prices increasing in the three and nine month
periods ending September 30, 2008 by 52% and 65%, respectively,
over 2007. Sales volumes remained constant in Q3-2008 compared with
Q3-2007.
- Royalties and taxes as a percentage of revenue increased to
61% in the first nine months of 2008 compared with 49% in 2007.
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 PSAs
allow for the recovery of operating and capital costs through a
reduction in government take of oil production.
- Operating expenses on a per barrel basis for the three and
nine months ended September 30, 2008 increased 25% and 38%,
respectively, mainly due to declining production in the Tasour
field, increased diesel costs and well workovers.
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. The hedging program was expanded significantly in
September 2007 to protect the cash flows from the added risk of
commodity price exposure following a marked increase in
TransGlobe's debt levels resulting from the Dublin and Drucker
acquisitions.
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.
From a corporate perspective, the high commodity prices in the
quarter had a positive impact on the Company's revenue. However,
these strong prices resulted in realized losses recorded on the
derivative commodity contracts which were closed out during the
quarter, based on a weighted average Dated Brent oil price of
$114.78/Bbl. The forward curve prices based on Dated Brent oil of
$98.13/Bbl at September 30, 2008, compared with $138.86/Bbl at June
30, 2008, resulted in the recording of unrealized gains on the
future derivative commodity contracts for the three months ended
September 30, 2008. As a result of the difference between the
forward curve prices at December 31, 2007 based on Dated Brent oil
of $96.02/Bbl and the price at September 30, 2008 narrowing from
June 30, 2008, much of the unrealized loss recorded in Q2-2008 was
reversed and a smaller unrealized loss was recorded for the nine
months ended September 30, 2008.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
($000s) 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized cash loss on commodity
contracts (2,649) - (7,526) -
Unrealized gain (loss) on remaining
commodity contracts 17,539 (1,033) (1,929) (1,187)
----------------------------------------------------------------------------
Total derivative gain (loss) on
commodity contracts 14,890 (1,033) (9,455) (1,187)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
If the Dated Brent oil price remains at the level experienced at
the end of Q3-2008, the derivative liability will be realized over
the next two years. However, a 10% decrease in Dated Brent oil
prices would result in a $3.2 million reduction in the derivative
commodity contract liability, thus reducing the unrealized loss by
the same amount. Conversely, a 10% increase in Dated Brent oil
prices would increase the unrealized loss on commodity contracts by
$3.4 million. The following commodity contracts are outstanding at
September 30, 2008:
Dated Brent
Pricing
Period Volume Type Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
----------
January 1, 2008
-December 31, 2008 12,000 Bbls/month Financial Collar $60.00-$81.20
January 1, 2009
-December 31, 2009 12,000 Bbls/month Financial Collar $60.00-$82.10
September 1, 2008
-January 31, 2009 11,000 Bbls/month Financial Collar $60.00-$88.80
February 1, 2009
-December 31, 2009 6,000 Bbls/month Financial Collar $60.00-$86.10
January 1, 2010
-August 31, 2010 12,000 Bbls/month Financial Collar $60.00-$84.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The total volumes hedged for the balance of 2008 and the following years
are:
3 Months
2008 2009 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bbls 69,000 221,000 96,000
Bopd 750 605 395
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As a result of the re-evaluation of management's intent in
Q2-2008 for the derivative commodity contracts, the contracts were
classified as both current and long-term liabilities on the Balance
Sheet as there is no intent to settle these derivative instruments
early. At September 30, 2008, $5.0 million of the derivative
commodity contracts were classified as current liabilities and $4.0
million of the derivative commodity contracts were classified as
long-term liabilities.
GENERAL AND ADMINISTRATIVE EXPENSES
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 7,360 3.58 4,455 3.08
Stock-based compensation 1,246 0.61 885 0.61
Capitalized G&A (1,357) (0.66) (1,166) (0.80)
Overhead recoveries (46) (0.02) (193) (0.13)
----------------------------------------------------------------------------
G&A (net) 7,203 3.51 3,981 2.76
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross) 2,101 3.29 1,531 3.18
Stock-based compensation 480 0.75 300 0.62
Capitalized G&A (515) (0.81) (303) (0.63)
Overhead recoveries - - (79) (0.16)
----------------------------------------------------------------------------
G&A (net) 2,066 3.23 1,449 3.01
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In the three and nine months ended September 30, 2008, G&A
increased 43% and 81%, respectively (7% and 27% increase,
respectively, on a sales Bbl basis), compared with the same periods
in 2007. The G&A per Bbl is higher mainly as a result of the
West Gharib acquisitions, a new operated area for the Company,
which required higher staffing levels and increased travel costs.
Higher professional fees resulting from the acquisitions and
increased compliance, as well as one-time charges relating to the
disposition of the Canadian operations also contributed to the rise
in total G&A costs.
INTEREST ON LONG-TERM DEBT
Interest expense in the three and nine months ended September
30, 2008 increased to $0.8 million and $5.1 million, respectively
(2007 - $0.1 million and $0.1 million, respectively). Interest
expense for the three and nine months ended September 30, 2008
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, 2008, the Company expensed $0.1 million and
$1.8 million, respectively, of transaction costs. The Company had
$58.0 million of debt outstanding on September 30, 2008 (September
30, 2007 - $63.0 million). The long-term debt bears interest at the
Eurodollar Rate plus three percent.
DEPLETION AND DEPRECIATION
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl(i)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 16,444 20.28 4,329 20.09
Yemen 9,394 8.82 9,544 9.07
Corporate 295 - 109 -
----------------------------------------------------------------------------
26,133 13.93 13,982 13.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Egypt depletion and depreciation $/Bbl for the nine months ended
September 30, 2007 excludes $4.1 million in dry hole costs on the Nuqra
block written-off prior to the West Gharib PSC acquisition.
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Bbl amounts) $ $/Bbl $ $/Bbl(i)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 5,523 19.39 425 17.86
Yemen 3,221 9.12 3,276 9.59
Corporate 218 - 38 -
----------------------------------------------------------------------------
8,962 13.70 3,739 10.61
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Egypt depletion and depreciation $/Bbl for the three months ended
September 30, 2007 excludes $0.2 million in dry hole costs on the Nuqra
block written-off prior to the West Gharib PSC acquisition.
In Egypt, depletion and depreciation ("DD&A") in the three
and nine months ended September 30, 2008 increased to $5.5 million
and $16.4 million, respectively, due to DD&A charges from the
West Gharib acquisitions in Egypt. The high DD&A costs per Bbl
result from the fact that DD&A is depleted on proved reserves,
while the purchase price for the Egypt acquisitions were based on
proved plus probable reserves. This DD&A rate per Bbl are
expected to decrease as the probable reserves are converted to
proved reserves.
In Yemen, DD&A on a Bbl basis remained consistent for the
three and nine months ended September 30, 2008.
In Egypt, unproven property costs of $9.9 million relating to
$7.9 million in Nuqra and $2.0 million in West Gharib were excluded
from costs subject to depletion and depreciation. In Yemen,
unproven property costs of $6.8 million relating to Block 72, Block
75 and Block 84 were excluded from costs subject to depletion and
depreciation.
CAPITAL EXPENDITURES/DISPOSITIONS
Nine Months Ended
----------------------------------------------------------------------------
September 30, September 30,
2008 2007
----------------------------------------------------------------------------
(000s) $ $
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt 23,157 3,737
Yemen 6,624 13,831
Corporate 152 21
----------------------------------------------------------------------------
29,933 17,589
Acquisitions 62,011 68,030
----------------------------------------------------------------------------
Total 91,944 85,619
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, the Company drilled nine wells in the nine months
ended September 30, 2008, including three oil wells at Hana, two
oil wells at South Rahmi, one oil well at each of Arta and Hoshia,
a water injection well at Hoshia and a dry hole at West Hoshia in
the West Gharib area. TransGlobe also completed a 3-D seismic
program on the West Gharib Block. In February 2008, the Company
acquired the shares of GHP that holds a 30% working interest in the
West Gharib PSC and valued the property, plant and equipment of GHP
at $36.6 million. Goodwill of $3.6 million was recorded on this
acquisition. TransGlobe further increased its ownership in the
remaining eight non-Hana leases on the West Gharib PSC by 25% to
100% in August, 2008 through an $18.0 million property
acquisition.
In Yemen, the Company drilled four wells on Block 32, completed
construction of a six-inch gas pipeline connecting the Godah
production facility to the Tasour Central Production Facility and
completed a 3-D seismic program on Block 72 during the nine months
ended September 30, 2008.
OUTSTANDING SHARE DATA
As at September 30, 2008, the Company had 59,551,839 common
shares issued and outstanding.
In August 2008, the Company renewed its Normal Course Issuer Bid
("NCIB") with the Toronto Stock Exchange ("TSX"). Pursuant to the
NCIB, the Company may repurchase, from time to time, as it
considers advisable, up to 5,558,322 common shares during the
12-month period commencing August 1, 2008 and ending July 31, 2009.
During Q3-2008, the Company repurchased 300,000 common shares at an
average price of C$3.87 per share. As at September 30, 2008,
248,000 of these shares had been cancelled. The remaining 52,000
shares were cancelled in October, 2008. During the nine months
ended September 30, 2007, the Company purchased 115,900 common
shares at an average price of C$4.07 per share.
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 proved 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 measure
the Company's overall financial strength is debt-to-cash flow from
operating activities (calculated on a 12-month rolling basis).
TransGlobe's debt-to-cash flow from operating activities ratio, a
key short-term leverage measure, remained strong at 0.9 times at
September 30, 2008. 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 nine month periods ended September 30, 2008 and
2007:
Sources and Uses of Cash
Nine Months Ended September 30
----------------------------------------------------------------------------
($000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
Cash flow from continuing operations(i) 46,780 26,736
Increase in long-term debt 55,000 63,000
Exercise of options 514 605
----------------------------------------------------------------------------
102,294 90,341
Cash used
Exploration and development expenditures 29,933 17,589
Acquisitions 62,011 68,030
Repayment of long-term debt 55,000 -
Bank financing costs 1,339 1,346
Options surrendered for cash payments 256 -
Repurchase of common shares 1,135 471
Other 62 (228)
----------------------------------------------------------------------------
149,736 87,208
----------------------------------------------------------------------------
Net cash from continuing operations (47,442) 3,133
Net cash from discontinued operations 53,588 1,523
Changes in non-cash working capital (10,282) (2,945)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (4,136) 1,711
Cash and cash equivalents - beginning of
period 12,729 8,836
----------------------------------------------------------------------------
Cash and cash equivalents - end of period 8,593 10,547
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Cash flow from continuing 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, the acquisition
of GHP, and asset purchase in the first nine months of 2008 was
provided by cash flow from operations, working capital, long-term
debt, and the sale of the Canadian oil and gas assets.
Working capital is the amount by which current assets exceed
current liabilities. At September 30, 2008 the Company had working
capital of $24.8 million (December 31, 2007 - $5.5 million)
including discontinued operations. Accounts receivable increased
primarily as a result of increased working interest in the West
Gharib concession in Egypt. These receivables are not considered to
be impaired. Accounts payable increased due to the GHP acquisition
and increased drilling activity in Egypt.
The Company anticipates funding its remaining approved 2008
exploration and development program of $38.0 million ($29.9 million
incurred to September 30, 2008) and contractual commitments through
the use of working capital and cash generated by operating
activities. TransGlobe possesses flexibility with respect to its
drilling program and is well positioned to manage through the
current financial crisis. Fluctuations in commodity prices, product
demand, foreign exchange rates, interest rates and various other
risks may impact capital resources.
At the end of the third quarter of 2008, the Company had drawn
$58.0 million against its Revolving Credit Agreement of $60.0
million.
($000s) September 30, 2008 December 31, 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement 58,000 50,000
Term Loan Agreement - 8,000
----------------------------------------------------------------------------
58,000 58,000
Unamortized transaction costs (873) (1,315)
----------------------------------------------------------------------------
57,127 56,685
----------------------------------------------------------------------------
Current portion of long-term debt - 4,727
----------------------------------------------------------------------------
Long-term debt 57,127 51,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company is subject to financial covenants in its Revolving
Credit Agreement. The key financial covenants for the quarter are
as follows:
- Interest coverage ratio of greater than 3.5 to 1.0, calculated
as EBITDAX to interest expense, for the immediately preceding four
consecutive fiscal quarters. For the purposes of the financial
covenant calculations EBITDAX shall mean Consolidated Net Income
before interest, income taxes, depreciation, depletion,
amortization, and accretion, unrealized hedging losses and
stock-based compensation expense.
- Indebtedness to EBITDAX of less than 2.0 to 1.0. For the
purposes of the financial covenant calculation, indebtedness shall
mean the balance of the Revolving Credit Facility, letters of
credit, and any amounts payable in connection with a realized
derivative loss.
- Current ratio (current assets to current liabilities,
excluding the current portion of long-term debt) of greater than
1.0 to 1.0.
The Company is in compliance with all financial covenants at
September 30, 2008.
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(i,ii)
----------------------------------------------------------------------------
Recognized in Contractual
Financial Cash Less than 1-3 4-5 More than
Statements Flows 1 year years years 5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable
and accrued
liabilities Yes-Liability 21,837 21,837 - - -
Long-term debt:
Revolving Credit
Agreement Yes-Liability 58,000 - 58,000 - -
Office and
equipment leases No 840 374 466 - -
Minimum work
commitments(iii) No 12,900 500 5,800 6,600 -
----------------------------------------------------------------------------
Total 93,577 22,711 64,266 6,600 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
i. Payments exclude ongoing operating costs related to certain leases,
interest on long-term debt and payments made to settle derivatives.
ii. Payments denominated in foreign currencies have been translated at
September 30, 2008 exchange rates.
iii. Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
Pursuant to the East Hoshia Development Lease in Egypt, the
Company has committed to drilling three exploration wells and
submitted a letter of production guarantee for $4.0 million as
security (expiring June 1, 2009).
Pursuant to the PSA for Block 72, Yemen, the Contractor (joint
venture partners) has a minimum financial commitment of $4.0
million ($1.3 million to TransGlobe) during the first exploration
period. The remaining commitment to TransGlobe is $0.5 million.
This period has been extended to January 12, 2009 and applies to
exploration work consisting of seismic acquisition (completed) and
one remaining exploration well.
Pursuant to the PSA for Block 75, Yemen, the Contractor (joint
venture partners) has a minimum financial commitment of $7.0
million ($1.8 million to TransGlobe) for the signature bonus and
first exploration period work program consisting of seismic
acquisition and 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 bid awarded for Block 84, Yemen, the Contractor
(joint venture partners) has a minimum financial commitment of
$20.1 million ($6.6 million to TransGlobe) for the signature bonus
and first exploration period work program consisting of seismic
acquisition and four exploration wells. The first 42-month
exploration period will commence when the PSA has been approved and
ratified by the government of Yemen, anticipated to occur in
2008.
Pursuant to the August 18, 2008 asset purchase agreement for a
25% 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.
OPERATING RESULTS FROM DISCONTINUED OPERATIONS
The following applies to the Canadian operations only. The sale
of the Canadian operations closed April 30, 2008. Year-to-date 2008
figures include four months of operational and financial results.
Comparative 2007 Q3 and year-to-date figures are for full periods.
The Canadian operations and results have been accounted for as
discontinued operations.
Net Operating Results
Canada
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Boe amounts) $ $/Boe $ $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales 2,189 96.36 3,683 62.19
Gas sales ($ per Mcf) 7,113 8.78 10,849 6.62
NGL sales 1,606 82.73 2,758 52.06
Other sales 115 - 337 -
----------------------------------------------------------------------------
11,023 62.25 17,627 45.75
Royalties and other 2,368 13.37 3,087 8.01
Operating expenses 2,302 13.00 3,079 7.99
----------------------------------------------------------------------------
Netback 6,353 35.88 11,461 29.75
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Boe amounts) $ $/Boe $ $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales - - 1,458 74.05
Gas sales ($ per Mcf) - - 3,454 6.19
NGL sales - - 926 58.43
Other sales - - 76 -
----------------------------------------------------------------------------
5,914 46.00
Royalties and other - - 943 7.33
Operating expenses - - 855 6.65
----------------------------------------------------------------------------
Netback - - 4,116 32.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation, Depletion and Accretion ("DD&A")
Nine Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Boe amounts) $ $/Boe $ $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada 2,678 15.12 8,567 22.16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
(000s, except per Boe amounts) $ $/Boe $ $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada - - 3,097 24.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Canada, DD&A decreased 33% per Boe to $15.12/Boe in the
nine months ended September 30, 2008 compared with $22.52/Boe in
the same period in 2007. DD&A was not recognized on the
Canadian assets after the held-for-sale criterion had been met.
Future Income Taxes
The future income recovery included in net income from
discontinued operations for the nine months ended September 30,
2008 was $0.08 million (2007 expense of $0.06 million). This cost
relates to a non-cash expense for taxes to be paid in the future as
Canadian tax pools reverse.
Capital expenditures
Nine Months Ended
----------------------------------------------------------------------------
($000s) September 30, 2008 September 30, 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canada 749 8,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2008, the Company adopted the Canadian
Institute of Chartered Accountants ("CICA") Section 1535, Capital
Disclosures as issued by the Accounting Standards Board ("AcSB").
The main features of this section are to establish requirements for
an entity to disclose qualitative information about its objectives,
policies and processes for managing capital, quantitative data
about what it regards as capital, and whether it has complied with
any externally imposed capital requirements and, if not, the
consequences of such non-compliance.
Effective January 1, 2008, the Company adopted CICA Section
3862, Financial Instruments Disclosures, and CICA Section 3863,
Financial Instruments Presentations, which require incremental
disclosures regarding the significance of financial instruments for
the entity's financial position and performance; and the nature,
extent and management of risks arising from financial instruments
to which the entity is exposed.
Foreign currency translation
In the second quarter of 2008, as a result of the sale of the
Canadian oil and natural gas interests, the Company reviewed its
foreign currency translation policy for its Canadian operations and
determined that such operations are now integrated. The accounts of
integrated foreign operations are translated using the temporal
method, whereby monetary assets and liabilities are translated at
the period-end exchange rates, non-monetary assets and liabilities
at the historical rates, and revenues and expenses at the rates for
the period, except for the depreciation, depletion and accretion
expense, which is translated on the same basis as the related
assets. Translation gains and losses related to the operations are
included in net income. Previously, operations in Canada were
considered to be self-sustaining and translated using the current
rate method. Under the current rate method, assets and liabilities
are translated at the period-end exchange rates, while revenues and
expense are translated using rates for the period and gains and
losses are included as a separate component of shareholders'
equity. This change in practice was adopted prospectively beginning
May 1, 2008.
New accounting standards
In February 2008, the CICA issued Section 3064, Goodwill and
intangible assets, replacing Section 3062, Goodwill and other
intangible assets and Section 3450, Research and development costs.
Various changes have been made to other sections of the CICA
Handbook for consistency purposes. The new Section will be
applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company
will adopt the new standards for its fiscal year beginning January
1, 2009. It establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented
enterprises. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062. The Company is
currently evaluating the impact of the adoption of this new Section
on its Consolidated Financial Statements.
In January 2006, the AcSB adopted a strategic plan for the
direction of accounting standards in Canada. On February 13, 2008,
the AcSB has confirmed that effective for interim and annual
financial statements related to fiscal years beginning on or after
January 1, 2011, International Financial Reporting Standards will
replace Canada's current Generally Accepted Accounting Principles
("GAAP") for all publicly accountable profit-oriented enterprises.
The Company is currently evaluating the impact of this change on
its Consolidated Financial Statements.
INTERNAL CONTROLS OVER FINANCIAL REPORTING & DISCLOSURE AND
PROCEDURES
TransGlobe is required to comply with Multilateral Instrument
52-109 "Certification of Disclosure in Issuers' Annual and Interim
Filings", otherwise referred to as Canadian SOX. The 2008
certificate requires that the Company disclose in the interim
MD&A any changes in the Company's internal control over
financial reporting that occurred during the period that has
materially affected, or is reasonable likely to materially affect,
the Company's internal control over financial reporting. The
Company confirms that no such changes were made to the internal
controls over financial reporting during the first nine months of
2008.
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income 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
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
Oil and gas sales, net of royalties
and other $ 36,577 $ 15,793 $105,466 $ 44,028
Derivative gain (loss) on commodity
contracts (Note 14a) 14,890 (1,033) (9,455) (1,187)
Other income 11 34 145 74
----------------------------------------------------------------------------
51,478 14,794 96,156 42,915
----------------------------------------------------------------------------
EXPENSES
Operating 5,088 2,490 13,476 6,863
General and administrative 2,066 1,449 7,203 3,981
Interest on long-term debt 783 92 5,068 92
Foreign exchange (gain) loss 41 30 28 (13)
Depletion and depreciation (Note 6) 8,962 3,739 26,133 13,982
----------------------------------------------------------------------------
16,940 7,800 51,908 24,905
----------------------------------------------------------------------------
Income before income taxes 34,538 6,994 44,248 18,010
----------------------------------------------------------------------------
Income taxes - current 9,751 2,828 28,557 7,325
----------------------------------------------------------------------------
NET INCOME FROM CONTINUING
OPERATIONS 24,787 4,166 15,691 10,685
NET INCOME FROM DISCONTINUED
OPERATIONS (Note 4) 3 1,032 8,192 2,836
----------------------------------------------------------------------------
NET INCOME 24,790 5,198 23,883 13,521
Retained earnings, beginning of
period 56,880 53,308 57,787 45,360
Repurchase of common shares (Note 8) (756) - (756) (375)
----------------------------------------------------------------------------
RETAINED EARNINGS, END OF PERIOD $ 80,914 $ 58,506 $ 80,914 $ 58,506
----------------------------------------------------------------------------
Net income from continuing
operations per share (Note 12)
- Basic $ 0.41 $ 0.07 $ 0.26 $ 0.18
- Diluted $ 0.41 $ 0.07 $ 0.26 $ 0.18
----------------------------------------------------------------------------
Net income from discontinued
operations per share (Note 12)
- Basic $ - $ 0.02 $ 0.13 $ 0.05
- Diluted $ - $ 0.01 $ 0.13 $ 0.04
----------------------------------------------------------------------------
Net income per share (Note 12)
- Basic $ 0.41 $ 0.09 $ 0.39 $ 0.23
- Diluted $ 0.41 $ 0.08 $ 0.39 $ 0.22
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Comprehensive Income
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 24,790 $ 5,198 $ 23,883 $ 13,521
Other comprehensive income (loss):
Foreign currency translation
adjustment - 3,767 (886) 8,323
----------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 24,790 $ 8,965 $ 22,997 $ 21,844
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
As at As at
September 30, December 31,
2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 8,593 $ 12,729
Accounts receivable 41,517 14,408
Prepaid expenses 574 320
Discontinued operations (Note 4) 986 4,300
----------------------------------------------------------------------------
51,670 31,757
----------------------------------------------------------------------------
Goodwill (Note 5) 8,180 4,313
Property and equipment (Notes 6 and 16) 174,651 116,288
Discontinued operations (Note 4) - 51,861
----------------------------------------------------------------------------
$ 234,501 $ 204,219
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued
liabilities $ 21,122 $ 7,790
Income taxes payable 79 -
Derivative commodity contracts (Note 14a) 4,991 7,098
Current portion of long-term debt (Note 7) - 4,727
Liabilities of discontinued operations
(Note 4) 636 6,648
----------------------------------------------------------------------------
26,828 26,263
----------------------------------------------------------------------------
Derivative commodity contracts (Note 14a) 4,036 -
Long-term debt (Note 7) 57,127 51,958
Discontinued operations (Note 4) - 2,755
----------------------------------------------------------------------------
87,991 80,976
----------------------------------------------------------------------------
Commitments and contingencies (Note 15)
SHAREHOLDERS' EQUITY
Share capital (Note 8) 50,408 50,128
Contributed surplus (Note 10) 4,308 3,562
Accumulated other comprehensive income
(Note 11) 10,880 11,766
Retained earnings 80,914 57,787
----------------------------------------------------------------------------
146,510 123,243
----------------------------------------------------------------------------
$ 234,501 $ 204,219
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board:
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
2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING
ACTIVITIES:
OPERATING
Net income $ 24,790 $ 5,198 $ 23,883 $ 13,521
Net income from discontinued
operations 3 1,032 8,192 2,836
----------------------------------------------------------------------------
Net income from continuing
operations 24,787 4,166 15,691 10,685
Adjustments for items not affecting
cash:
Depletion and depreciation 8,962 3,739 26,133 13,982
Stock-based compensation (Note 9) 480 300 1,246 885
Amortization of deferred financing
costs 85 40 1,781 113
Unrealized derivative (gain) loss
on commodity contracts (17,539) 1,033 1,929 1,187
Settlement of asset retirement
obligations - (21) - (116)
Changes in non-cash working capital 3,708 (3,719) (6,700) (6,445)
----------------------------------------------------------------------------
Cash provided by continuing
operations 20,483 5,538 40,080 20,291
Cash provided by discontinued
operations 169 2,508 6,461 10,544
----------------------------------------------------------------------------
20,652 8,046 46,541 30,835
----------------------------------------------------------------------------
FINANCING
Increase in long-term debt (Note 7) 15,000 63,000 55,000 63,000
Repayments of long-term debt (Note 7) - - (55,000) -
Deferred financing costs (155) (1,346) (1,339) (1,346)
Issue of common shares for cash
(Note 8) - 272 514 605
Options surrendered for cash
payments (Note 8) - - (256) -
Repurchase of common shares (Note 8) (1,135) - (1,135) (471)
Changes in non-cash working capital 108 211 704 211
----------------------------------------------------------------------------
13,818 62,137 (1,512) 61,999
----------------------------------------------------------------------------
INVESTING
Exploration and development
expenditures (18,755) (3,036) (29,933) (17,589)
Acquisitions (Note 3) (17,552) (68,030) (62,011) (68,030)
Changes in non-cash working capital (1,202) 5,651 (4,178) 2,372
----------------------------------------------------------------------------
Cash used by continuing operations (37,509) (65,415) (96,122) (83,247)
Cash provided (used) by
discontinued operations - (3,176) 47,019 (8,104)
----------------------------------------------------------------------------
(37,509) (68,591) (49,103) (91,351)
----------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (41) 99 (62) 228
----------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,080) 1,691 (4,136) 1,711
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,673 8,856 12,729 8,836
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 8,593 $ 10,547 $ 8,593 $ 10,547
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental Disclosure of Cash
Flow Information
Cash interest paid $ 783 $ 92 $ 5,068 $ 92
Cash taxes paid $ 9,751 $ 2,828 $ 28,557 $ 7,325
Cash is comprised of cash on hand
and balances with banks $ 8,593 $ 10,547 $ 8,593 $ 10,547
Cash equivalents - - - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Expressed in U.S. Dollars)
1. Basis of presentation
The interim consolidated financial statements include the
accounts of TransGlobe Energy Corporation and its subsidiaries
("TransGlobe" or the "Company") as at September 30, 2008 and
December 31, 2007 and for the three and nine month periods ended
September 30, 2008 and 2007 and are presented in accordance with
Canadian generally accepted accounting principles on the same basis
as the audited consolidated financial statements as at and for the
year ended December 31, 2007, except as outlined in Note 2. These
interim financial statements do not contain all the disclosures
required for annual financial statements. Accordingly, these
interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and the
notes thereto in TransGlobe's annual report for the year ended
December 31, 2007. In these interim consolidated financial
statements, unless otherwise indicated, all dollars are expressed
in United States (U.S.) dollars. All references to US$ or to $ are
U.S. dollars and references to C$ are to Canadian dollars.
2. Changes in accounting policies
Effective January 1, 2008, the Company adopted the Canadian
Institute of Chartered Accountants ("CICA") Section 1535, Capital
Disclosures as issued by the Accounting Standards Board ("AcSB").
The main features of this section are to establish requirements for
an entity to disclose qualitative information about its objectives,
policies and processes for managing capital, quantitative data
about what it regards as capital, and whether it has complied with
any externally imposed capital requirements and, if not, the
consequences of such non-compliance.
Effective January 1, 2008, the Company adopted CICA Section
3862, Financial Instruments Disclosures, and CICA Section 3863,
Financial Instruments Presentations, which require incremental
disclosures regarding the significance of financial instruments for
the entity's financial position and performance; and the nature,
extent and management of risks arising from financial instruments
to which the entity is exposed.
The Company has applied these new standards prospectively in
Note 13 - Capital disclosures for Section 1535 Capital Disclosures
and in Note 14 - Financial instruments and risk management for
Sections 3862 Financial Instruments Disclosures and 3863 Financial
Instruments Presentations.
Foreign currency translation
In the second quarter of 2008, as a result of the sale of the
Canadian oil and natural gas interests, the Company reviewed its
foreign currency translation policy for its Canadian operations and
determined that such operations are now integrated. The accounts of
integrated operations are translated using the temporal method,
whereby monetary assets and liabilities are translated at the
period-end exchange rates, non-monetary assets and liabilities at
the historical rates and revenues and expenses at the rates for the
period, except for the depreciation, depletion and accretion
expense, which is translated on the same basis as the related
assets. Translation gains and losses related to the operations are
included in net income. Previously, operations in Canada were
considered to be self-sustaining and translated using the current
rate method. Under the current rate method, assets and liabilities
are translated at the period-end exchange rates, while revenues and
expense are translated using rates for the period and gains and
losses are included as a separate component of shareholders'
equity. This change in practice was adopted prospectively beginning
May 1, 2008.
New accounting standards
In February 2008, the CICA issued Section 3064, Goodwill and
intangible assets, replacing Section 3062, Goodwill and other
intangible assets and Section 3450, Research and development costs.
Various changes have been made to other sections of the CICA
Handbook for consistency purposes. The new Section will be
applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company
will adopt the new standards for its fiscal year beginning January
1, 2009. It establishes standards for the recognition, measurement,
presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented
enterprises. Standards concerning goodwill are unchanged from the
standards included in the previous Section 3062. The Company is
currently evaluating the impact of the adoption of this new Section
on its Consolidated Financial Statements.
In January 2006, the AcSB adopted a strategic plan for the
direction of accounting standards in Canada. On February 13, 2008,
the AcSB has confirmed that effective for interim and annual
financial statements related to fiscal years beginning on or after
January 1, 2011, International Financial Reporting Standards will
replace Canada's current Generally Accepted Accounting Principles
("GAAP") for all publicly accountable profit-oriented enterprises.
The Company is currently evaluating the impact of this change on
its Consolidated Financial Statements.
3. Acquisitions
Corporate acquisitions
a) GHP Exploration (West Gharib) Ltd.
On February 5, 2008, TransGlobe acquired all of the common
shares of GHP Exploration (West Gharib) Ltd. ("GHP") for cash
consideration of $44.1 million, net of cash acquired. The results
of GHP's operations have been included in the consolidated
financial statements since that date. GHP holds a 30% interest in
the West Gharib Concession area in Egypt. TransGlobe funded the
acquisition from bank debt of $40.0 million and cash on hand.
The acquisition has been accounted for using the purchase method
with TransGlobe as the acquirer, and the purchase price was
allocated to the fair value of the assets acquired and the
liabilities assumed as follows:
Cost of acquisition (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of cash acquired $ 44,095
Transaction costs 99
----------------------------------------------------------------------------
$ 44,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Allocation of purchase price (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and equipment $ 36,602
Goodwill 3,602
Working capital, net of cash acquired 3,990
----------------------------------------------------------------------------
$ 44,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------
b) Dublin International Petroleum (Egypt) Limited and Drucker
Petroleum Inc.
On September 25, 2007, TransGlobe acquired all of the common
shares of two private companies, Dublin International Petroleum
(Egypt) Limited ("Dublin") and Drucker Petroleum Inc., ("Drucker")
for cash consideration of $67.7 million, net of cash acquired. The
results of Dublin's and Drucker's operations have been included in
the consolidated financial statements since that date. Dublin and
Drucker hold interests in eight development leases and associated
infrastructure in the West Gharib Concession area in Egypt (Dublin
is the operator of this Concession). TransGlobe funded the
acquisition from cash on hand and bank debt of $63.0 million.
The acquisition has been accounted for using the purchase method
with TransGlobe as the acquirer, and the purchase price was
allocated to the fair value of the assets acquired and the
liabilities assumed as follows:
Cost of acquisition (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of cash acquired $ 67,949
Transaction costs 317
----------------------------------------------------------------------------
$ 68,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Allocation of purchase price (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and equipment $ 54,823
Goodwill 4,578
Working capital, net of cash acquired 8,865
----------------------------------------------------------------------------
$ 68,266
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property acquisition
On August 18, 2008, TransGlobe completed an oil and gas property
acquisition in Egypt for the 25% financial interest in the eight
non-Hana development leases. The total cost of the acquisition was
$18.0 million, subject to closing adjustments to the effective date
of June 1, 2008. In addition, the Company could pay up to an
additional $7.0 million if incremental reserve thresholds are
reached in the East Hoshia (up to $5.0 million) and in South Rahmi
(up to $2.0 million) development leases. The value of the net
assets acquired has been assigned to property and equipment. As a
result of this property acquisition, TransGlobe now holds a 100%
working interest in the West Gharib Concession in Egypt.
4. Discontinued operations
On April 15, 2008, the Company entered into an agreement with a
third party for the sale of its Canadian oil and natural gas
interests. The sale price of the assets was $56.7 million, subject
to normal closing adjustments. The sale closed on April 30, 2008.
The Canadian operations have been accounted for as discontinued
operations in accordance with Canadian GAAP. Results of the
Canadian operations have been included in the financial statements
up to the closing date of the sale (the date control was
transferred to the purchaser). The Company used the cash proceeds
from the sale and cash on hand to repay $55.0 million of debt.
The Company recorded a gain on disposition of $4.4 million, net
of tax, in the nine months ended September 30, 2008. The total gain
booked is an estimate based on the proceeds expected to be received
per the final closing statement of adjustments. The final closing
statement of adjustments is expected to be completed in the fourth
quarter of 2008.
Discontinued operations as at December 31, 2007 included current
assets of $4.3 million, property and equipment of $50.0 million,
and a future income tax asset of $1.9 million. Discontinued
operations also included current liabilities of $6.6 million and
asset retirement obligations of $2.8 million. Discontinued
operations at September 30, 2008 included current assets of $0.7
million, property and equipment of $0.3 million, and current
liabilities of $0.6 million.
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------
(000s) 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil and gas sales, net of royalties $ - $ 4,971 $ 8,655 $ 14,540
Expenses
Operating - 855 2,302 3,079
Depletion, depreciation and
accretion - 3,097 2,678 8,567
----------------------------------------------------------------------------
- 3,952 4,980 11,646
Gain on disposition, net of tax 3 - 4,435 -
----------------------------------------------------------------------------
Income from discontinued operations
before taxes 3 1,019 8,110 2,894
Future income tax recovery
(expense) - 13 82 (58)
----------------------------------------------------------------------------
Net income from discontinued
operations $ 3 $ 1,032 $ 8,192 $ 2,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Canada, the Company capitalized overhead costs relating to
exploration and development activities during the nine months ended
September 30, 2008 of $0.4 million (2007 - $0.4 million). Unproven
property costs of $1.8 million were excluded from the costs subject
to depletion and depreciation for 2008 (2007 - $Nil). Future
development costs for proved reserves of $0.3 million (2007 - $4.5
million) were included in the depletion and depreciation
calculations. Depletion, depreciation and accretion was not
recorded while the assets were classified as held for sale.
5. Goodwill
Changes in the carrying amount of the Company's goodwill are as follows:
Nine Months Twelve Months
Ended Ended
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Opening balance $ 4,313 $ -
Acquired during period 3,867 4,313
----------------------------------------------------------------------------
Closing balance $ 8,180 $ 4,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Property and equipment
The Company capitalized overhead costs relating to exploration
and development activities during the three and nine months ended
September 30, 2008 of $0.4 million and $0.8 million, respectively,
in Egypt (2007 - $0.1 million and $0.4 million, respectively) and
$0.2 million and $0.2 million, respectively, in Yemen (2007 - $0.1
million and $0.5 million, respectively).
Unproven property costs excluded from the costs subject to
depletion and depreciation for the three months ended September 30,
2008 totalled $9.9 million in Egypt (2007 - $9.0 million) and $6.8
million in Yemen (2007 - $2.8 million).
Future development costs for proved reserves included in the
depletion calculations for the three months ended September 30,
2008 totalled $1.9 million in Egypt (2007 - $4.4 million) and $6.9
million in Yemen (2007 - $9.1 million).
7. Long-term debt
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement $ 58,000 $ 50,000
Term Loan Agreement - 8,000
----------------------------------------------------------------------------
58,000 58,000
Unamortized transaction costs (873) (1,315)
----------------------------------------------------------------------------
57,127 56,685
----------------------------------------------------------------------------
Current portion of long-term debt - 4,727
----------------------------------------------------------------------------
$ 57,127 $ 51,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at September 30, 2008, the Company has a $60.0 million
Revolving Credit Agreement of which $58.0 million is drawn. In
February 2008, the Company increased its Term Loan Agreement from
$8.0 million to $48.0 million. The entire amount of the Term Loan
was repaid in April 2008. The Revolving Credit Agreement expires on
September 19, 2010 and is secured by a first floating charge
debenture over all assets of the Company, a general assignment of
book debts, security pledge of the Company's subsidiaries and
certain covenants. The Revolving Credit Agreement bears interest at
the Eurodollar Rate plus three percent. During the three and nine
months ended September 30, 2008, the average effective interest
rate was 6.3% and 7.2%, respectively (September 25 - 30, 2007 -
10.1%). In the three and nine months ended September 30, 2008, the
Company incurred $0.2 million and $1.3 million, respectively, (2007
- $1.1 million and $1.1 million, respectively) in fees to draw on
its Revolving Credit Agreement and Term Loan Agreement.
The future debt payments on long-term debt as of September 30, 2008 are as
follows:
(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 -
2009 -
2010 $ 58,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Share capital
Authorized
The Company is authorized to issue an unlimited number of common shares with
no par value.
Issued
Nine Months Ended Year Ended
September 30, December 31,
2008 2007
----------------------------------------------------------------------------
(000s) Shares Amount Shares Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares, beginning of period 59,627 $ 50,128 58,883 $ 49,360
Stock options exercised 173 514 860 605
Stock options surrendered for cash
payments - (256) - -
Stock-based compensation on exercise - 403 - 260
Repurchase of common shares (248) (381) (116) (97)
----------------------------------------------------------------------------
Common shares, end of period 59,552 $ 50,408 59,627 $ 50,128
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company has received regulatory approval to purchase, from
time to time, as it considers advisable, up to 5,558,322 common
shares under a Normal Course Issuer Bid which commenced August 1,
2008 and will terminate July 31, 2009. During the three months
ended September 30, 2008, the Company purchased 300,000 common
shares at an average price of C$3.87 per share. At September 30,
2008, 248,000 of these shares had been cancelled. The remaining
52,000 shares were cancelled in October, 2008. The excess of the
purchase price over the book value in the amount of $0.8 million
was charged to retained earnings during the quarter. During the
nine months ended September 30, 2007, the Company purchased 115,990
common shares at an average price of C$4.07 per share, with $0.4
million charged to retained earnings.
9. Stock option plan
Stock Options
Nine Months Ended Year Ended
September 30, December 31,
2008 2007
----------------------------------------------------------------------------
Weighted Weighted
Average Average
No. of Exercise No. of Exercise
(000s, except per share amounts) Options Price Options Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options outstanding, beginning of
period 2,936 $ 4.11 3,110 $ 3.12
Granted 1,551 4.86 1,091 4.44
Exercised for common shares (173) 2.25 (860) 0.53
Surrendered for cash payments (150) 2.66 - -
Forfeited (386) 4.97 (405) 5.01
----------------------------------------------------------------------------
Options outstanding, end of period 3,778 $ 4.47 2,936 $ 4.11
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options exercisable, end of period 1,402 $ 3.94 1,602 $ 3.69
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Stock-based compensation
Stock-based compensation expense in the three and nine months
ended September 30, 2008 of $0.5 million and $1.2 million,
respectively, has been recorded in the Consolidated Statements of
Income and Retained Earnings (2007 - $0.3 million and $0.9
million). The fair value of all common stock options granted is
estimated on the date of grant using the lattice-based binomial
option pricing model. The weighted average fair value of the
options granted during 2008 and the assumptions used in their
determination are noted below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average fair market value per option (C$) 1.77
Risk-free interest rate (percent) 3.3
Expected volatility (percent) 44.16
Expected dividend yield (percent) 0
Expected forfeiture rate (non-executive employees)
(percent) 12
Early exercise (Year 1/Year 2/Year 3/Year 4/Year 5) (0%/10%/20%/30%/40%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options granted vest annually over a three-year period and expire five years
after the grant date.
10. Contributed surplus
Nine Months Ended Year Ended
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contributed surplus, beginning of period $ 3,562 $ 2,863
Stock-based compensation expense 1,149 959
Transfer to common shares on exercise of
options (403) (260)
----------------------------------------------------------------------------
Contributed surplus, end of period $ 4,308 $ 3,562
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. Accumulated other comprehensive income
The balance of accumulated other comprehensive income consists of the
following:
Nine Months Ended Year Ended
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive income,
beginning of period $ 11,766 $ 3,212
Other comprehensive income (loss):
Foreign currency translation adjustment (886) 8,554
----------------------------------------------------------------------------
Accumulated other comprehensive income, end
of period $ 10,880 $ 11,766
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. Per share amounts
In calculating the net income per share, net income from
continuing operations per share and net income from discontinued
operations per share, basic and diluted, the following weighted
average shares were used:
Three Months Ended Nine Months Ended
September 30 September 30
(000s) 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of shares
outstanding 59,784 59,554 59,757 59,584
Dilution effect stock options 987 867 867 992
----------------------------------------------------------------------------
Weighted average number of diluted
shares outstanding 60,771 60,421 60,624 60,576
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The treasury stock method assumes that the proceeds received
from the exercise of "in-the-money" stock options are used to
repurchase common shares at the average market price. In
calculating the weighted average number of diluted common shares
outstanding for the three and nine month periods ended September
30, 2008, the Company excluded 3,247,000 and 2,556,700 options,
respectively (September 30, 2007 - 1,205,000 and 1,181,000) because
their exercise price was greater than the period average common
share market price in the period.
13. Capital disclosures
The Company's objectives when managing capital are to ensure the
Company will have the financial capacity, liquidity and flexibility
to fund the ongoing exploration and development of its oil and gas
assets. The Company relies on cash flow to fund its capital
investments. However, due to long lead cycles of some of its
developments and corporate acquisitions, the Company's capital
requirements may exceed its cash flow generated in any one period.
This requires the Company to maintain financial flexibility and
liquidity. The Company sets the amount of capital in proportion to
risk and manages to ensure that the total of the long-term debt is
not greater than two times the Company's cash flow from operations
for the trailing twelve months. For the purposes of measuring the
Company's ability to meet the above stated criteria, cash flow from
operations is defined as the net income (including net income from
discontinued operations) before any deduction for depletion,
depreciation and accretion, amortization of deferred financing
charges, non-cash stock based compensation, and non-cash derivative
loss on commodity contracts.
The Company defines and computes its capital as follows:
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity $ 146,510 $ 123,243
Long-term debt, including the current portion 57,127 56,685
Cash (8,593) (12,729)
----------------------------------------------------------------------------
Total capital $ 195,044 $ 167,199
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's debt to cash flow ratio is computed as follows:
12 Months Trailing
----------------------------------------------------------------------------
September 30, December 31,
(000s) 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt, including the current portion $ 57,127 $ 56,685
----------------------------------------------------------------------------
Cash flow from operating activities $ 69,324 $ 53,618
Changes in non-cash working capital (2,247) (1,477)
----------------------------------------------------------------------------
Cash flow from operations $ 67,077 $ 52,141
----------------------------------------------------------------------------
Ratio 0.9 1.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Company's financial objectives and strategy as described
above have remained substantially unchanged over the last two
completed fiscal years. These objectives and strategy are reviewed
on an annual basis. The Company believes that its ratios are within
reasonable limits, in light of the relative size of the Company and
its capital management objectives.
The Company is also subject to financial covenants in its
revolving credit agreement. The key financial covenants for the
quarter are as follows:
- Interest coverage ratio of greater than 3.5 to 1.0, calculated
as EBITDAX to interest expense, for the immediately preceding four
consecutive fiscal quarters. For the purposes of the financial
covenant calculations EBITDAX shall mean Consolidated Net Income
before interest, income taxes, depreciation, depletion,
amortization, and accretion, unrealized hedging losses and
stock-based compensation expense.
- Indebtedness to EBITDAX of less than 2.0 to 1.0. For the
purposes of the financial covenant calculation, indebtedness shall
mean the balance of the Revolving Credit Facility, letters of
credit, and any amounts payable in connection with a realized
derivative loss.
- Current ratio (current assets to current liabilities,
excluding the current portion of long-term debt) of greater than
1.0 to 1.0.
The Company is in compliance with all financial covenants at
September 30, 2008.
14. Financial instruments and risk management
Carrying Values and Estimated Fair Values of Financial Assets
and Liabilities
The Company has classified its cash and cash equivalents as
financial assets held for trading and its derivative commodity
contracts as financial liabilities held for trading, which are both
measured at fair value with changes being recognized in net income.
Accounts receivable are classified as loans and receivables;
accounts payable and accrued liabilities, income taxes payable,
liabilities of discontinued operations, and long-term debt are
classified as other liabilities, all of which are measured at
amortized cost.
Carrying value and fair value of financial assets and liabilities are
summarized as follows:
September 30, 2008
----------------------------------------------------------------------------
Classification (000s) Carrying Value Fair Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial assets held-for-trading $ 8,593 $ 8,593
Loans and receivables 41,517 41,517
Financial liabilities held-for-trading 9,027 9,027
Other liabilities 78,964 79,837
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Credit Risk
Credit risk is the risk of loss if counterparties do not fulfill
their contractual obligations. The majority of the accounts
receivable are in respect of oil and gas operations. The Company
generally extends unsecured credit to these customers and therefore
the collection of accounts receivable may be affected by changes in
economic or other conditions. Management believes the risk is
mitigated by the size and reputation of the companies to which the
Company extends credit. The Company has not experienced any
material credit loss in the collection of accounts receivable to
date.
Trade and other receivables from continuing operations are
analyzed in the table below. With respect to the trade and other
receivables that are not impaired and past due, there are no
indications as of the reporting date that the debtors will not meet
their payment obligations.
(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trade and other receivables at September 30, 2008
----------------------------------------------------------------------------
Neither impaired nor past due $ 13,127
Impaired (net of valuation allowance) -
Not impaired and past due in the following period:
Within 30 days 5,545
31-60 days 6,301
61-90 days 6,254
Over 90 days 10,290
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In Egypt, the Company sold all of its 2008 production to one
purchaser. In Yemen, the Company sold all of its 2008 Block 32
production to one purchaser and all of its 2008 Block S-1
production to one purchaser. In Canada, the Company sold primarily
all of its 2008 gas production to one purchaser and primarily all
of its 2008 oil production to another single purchaser.
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 and natural gas 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.
a) Commodity Price Risk
The Company's operational results and financial condition are
partially dependent on the commodity prices received for its oil
and natural gas production. Commodity prices have fluctuated
significantly this year.
Any movement in commodity prices would have a significant effect
on the Company's financial condition. Therefore, the Company has
entered into various financial derivative contracts to manage
fluctuations in commodity prices in the normal course of
operations. The following are the contracts outstanding at
September 30, 2008:
Dated Brent
Pricing
Period Volume Type Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
January 1, 2008-
December 31, 2008 12,000 Bbls/month Financial Collar $ 60.00-$81.20
January 1, 2009-
December 31, 2009 12,000 Bbls/month Financial Collar $ 60.00-$82.10
September 1, 2008-
January 31, 2009 11,000 Bbls/month Financial Collar $ 60.00-$88.80
February 1, 2009-
December 31, 2009 6,000 Bbls/month Financial Collar $ 60.00-$86.10
January 1, 2010-
August 31, 2010 12,000 Bbls/month Financial Collar $ 60.00-$84.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
When assessing the potential impact of commodity price changes
on its financial derivative commodity contracts, the Company
believes 10% volatility is a reasonable measure. The effect of a
10% increase in commodity prices on the derivative commodity
contracts would decrease net income, for the three and nine months
ended September 30, 2008, by $3.4 million. The effect of a 10%
decrease in commodity prices on the derivative commodity contracts
would increase net income, for the three and nine months ended
September 30, 2008, by $3.2 million.
b) Foreign Currency Exchange Risk
The Company's Canadian operations are exposed to fluctuations in
foreign currency exchange rates. The Company manages its foreign
currency exchange risk by maintaining foreign currency bank
accounts and receivable accounts to offset foreign currency
payables and planned expenditures.
As the Company's business is conducted primarily in U.S. dollars
and its financial instruments are primarily denominated in U.S.
dollars, the potential impact of fluctuations in foreign exchange
rates on the Company's financial instruments would have a minimal
impact on net income and other comprehensive income for the three
and nine months ended September 30, 2008.
c) 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 2008 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 income, for the three and nine
months ended September 30, 2008, by $0.1 million and $0.5 million,
respectively. The effect of interest rates decreasing by 1% would
increase the Company's net income, for the three and nine months
ended September 30, 2008, by $0.1 million and $0.5 million,
respectively.
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. The following are the
contractual maturities of financial liabilities at September 30,
2008:
(000s) Payment Due by Period(i,ii)
----------------------------------------------------------------------------
Recognized in Less More
Financial Contractual than 1-3 4-5 than
Statements Cash Flows 1 year years years 5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts
payable and
accrued
liabilities Yes-Liability $ 21,837 $ 21,837 $ - $ - $ -
Long-term
debt:
Revolving
Credit
Agreement Yes-Liability 58,000 - 58,000 - -
Office and
equipment
leases No 840 374 466 - -
Minimum work
commitments(iii) No 12,900 500 5,800 6,600 -
----------------------------------------------------------------------------
Total $ 93,577 $ 22,711 $ 64,266 $ 6,600 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
i. Payments exclude ongoing operating costs related to certain leases,
interest on long-term debt and payments made to settle derivatives.
ii. Payments denominated in foreign currencies have been translated at
September 30, 2008 exchange rates.
iii. Minimum work commitments include contracts awarded for capital projects
and those commitments related to exploration and drilling obligations.
Management believes that future cash 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 existing banking
arrangements at September 30, 2008 consist of a Revolving Credit
Facility of $60.0 million of which $58.0 million is drawn.
The table below shows cash outflows for financial derivative
instruments based on forward curve prices for Dated Brent oil of
$98.13/Bbl at September 30, 2008:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Less than 1 year $ 4,991
1-3 years 4,036
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As a result of the re-evaluation of management's intent for the
derivative commodity contracts, the derivative commodity contracts
were classified as both current and long-term liabilities on the
Balance Sheet as at September 30, 2008 as there is no intent to
early settle these derivative instruments.
15. Commitments and Contingencies
Pursuant to the East Hoshia Development Lease in Egypt, the
Company has committed to drilling three exploration wells and
submitted a letter of production guarantee for $4.0 million as
security (expiring June 1, 2009).
Pursuant to the PSA for Block 72 in Yemen, the Contractor (joint
venture partners) has a minimum financial commitment of $4.0
million ($1.3 million to TransGlobe) during the first exploration
period. The remaining amount to be spent by TransGlobe is $0.5
million. This period has been extended to January 12, 2009 and
applies to exploration work consisting of seismic acquisition
(completed) and one remaining exploration well.
Pursuant to the PSA for Block 75 in Yemen, the Contractor (joint
venture partners) has a minimum financial commitment of $7.0
million ($1.8 million to TransGlobe) for the signature bonus and
first exploration period work program consisting of seismic
acquisition and 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 bid awarded for Block 84 in Yemen, the
Contractor (joint venture partners) has a minimum financial
commitment of $20.1 million ($6.6 million to TransGlobe) for the
signature bonus and first exploration period work program
consisting of seismic acquisition and four exploration wells. The
first 42-month exploration period will commence when the PSA has
been approved and ratified by the government of Yemen, anticipated
to occur in 2008.
Pursuant to the August 18, 2008 asset purchase agreement for a
25% 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.
16. Segmented information
----------------------------------------------------------------------------
Egypt Yemen Total
----------------------------------------------------------------------------
Nine Months Ended September 30
----------------------------------------------------------------------------
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil and gas
sales,net of
royalties
and other $ 43,586 $ 380 $ 61,880 $ 43,648 $105,466 $ 44,028
Other income 33 - - - 33 -
----------------------------------------------------------------------------
Total revenue 43,619 380 61,880 43,648 105,499 44,028
----------------------------------------------------------------------------
Segmented expenses
Operating 3,951 25 9,525 6,838 13,476 6,863
Depletion and
depreciation 16,444 4,329 9,394 9,544 25,838 13,873
Income taxes 12,929 113 15,628 7,212 28,557 7,325
----------------------------------------------------------------------------
Total segmented
expenses 33,324 4,467 34,547 23,594 67,871 28,061
----------------------------------------------------------------------------
Segmented income $ 10,295 $(4,087) $ 27,333 $ 20,054 37,628 15,967
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative loss
on commodity
contracts 9,455 1,187
General and
administrative 7,203 3,981
Interest on
long-term debt 5,068 92
Foreign exchange
gain 28 (13)
Depreciation 295 109
Other income (112) (74)
----------------------------------------------------------------------------
Total non-
segmented expenses 21,937 5,282
----------------------------------------------------------------------------
Net income from
continuing
operations 15,691 10,685
Net income from
discontinued
operations (Note 4) 8,192 2,836
----------------------------------------------------------------------------
Net income $ 23,883 $ 13,521
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration
and
development $ 23,157 $ 3,737 $ 6,624 $ 13,831 $ 29,781 $ 17,568
Property
acquisitions 18,000 - - - 18,000 -
----------------------------------------------------------------------------
$ 41,157 $ 3,737 $ 6,624 $ 13,831 47,781 17,568
Corporate 152 21
Corporate
acquisitions 36,602 54,637
----------------------------------------------------------------------------
Net capital
expenditures $ 84,535 $ 72,226
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt Yemen Total
----------------------------------------------------------------------------
Three Months Ended September 30
----------------------------------------------------------------------------
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Oil and gas
sales, net
of royalties
and other $ 15,889 $ 380 $ 20,688 $ 15,413 $ 36,577 $ 15,793
Other income - - - - - -
----------------------------------------------------------------------------
Total revenue 15,889 380 20,688 15,413 36,577 15,793
----------------------------------------------------------------------------
Segmented
expenses
Operating 1,914 25 3,174 2,465 5,088 2,490
Depletion and
depreciation 5,523 425 3,221 3,276 8,744 3,701
Income taxes 4,290 113 5,461 2,715 9,751 2,828
----------------------------------------------------------------------------
Total segmented
expenses 11,727 563 11,856 8,456 23,583 9,019
----------------------------------------------------------------------------
Segmented income $ 4,162 $ (183) $ 8,832 $ 6,957 12,994 6,774
----------------------------------------------------------------------------
Non-segmented
expenses
Derivative
loss on
commodity
contracts (14,890) 1,033
General and
administrative 2,066 1,449
Interest on
long-term debt 783 92
Foreign
exchange gain 41 30
Depreciation 218 38
Other income (11) (34)
----------------------------------------------------------------------------
Total non-segmented
expenses (11,793) 2,608
----------------------------------------------------------------------------
Net income from
continuing
operations 24,787 4,166
Net income from
discontinued
operations (Note 4) 3 1,032
----------------------------------------------------------------------------
Net income $ 24,790 $ 5,198
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital
expenditures
Exploration and
development $ 16,644 $ 116 $ 2,043 $ 2,919 $ 18,687 $ 3,035
Property
acquisitions 18,000 - - - 18,000 -
----------------------------------------------------------------------------
$ 34,644 $ 116 $ 2,043 $ 2,919 36,687 3,035
Corporate 68 1
Corporate
acquisitions - 54,637
----------------------------------------------------------------------------
Net capital
expenditures $ 36,755 $ 57,673
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sept. 30 Dec. 31 Sept. 30 Dec. 31 Sept. 30 Dec. 31
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and
equipment $123,640 $62,316 $50,312 $53,163 $173,952 $115,479
Goodwill 8,180 4,313 - - 8,180 4,313
Other 37,478 13,464 8,927 5,906 46,405 19,370
----------------------------------------------------------------------------
Segmented
assets $169,298 $80,093 $59,239 $59,069 228,537 139,162
Non-segmented
assets 4,978 8,896
Discontinued
operations 986 56,161
----------------------------------------------------------------------------
Total assets $234,501 $204,219
----------------------------------------------------------------------------
----------------------------------------------------------------------------
17. Comparative figures
Certain comparative figures have been reclassified to conform with current
period presentation.
CORPORATE INFORMATION
DIRECTORS AND OFFICERS TRANSFER AGENT AND REGISTRAR
Robert A. Halpin(1,2,3) Olympia Trust Company
Director, Chairman of the Board Calgary, Alberta
Ross G. Clarkson
Director, President & CEO LEGAL COUNSEL
Lloyd W. Herrick Burnet, Duckworth & Palmer, LLP
Director, Vice President & COO Calgary, Alberta
Erwin L. Noyes(2,3,4)
Director BANKER
Geoffrey C. Chase(1,2,4) Standard Bank Plc
Director London, England
Fred J. Dyment(1,3,4)
Director AUDITOR
David C. Ferguson Deloitte & Touche, LLP
Vice President, Finance, CFO & Calgary, Alberta
Corporate Secretary
1. Audit Committee EVALUATION ENGINEERS
2. Reserves Committee
3. Compensation Committee DeGolyer and MacNaughton
4. Governance and Canada Limited
Nominating Committee Calgary, Alberta
STOCK EXCHANGE LISTINGS HEAD OFFICE
TSX: TGL 2500, 605 -- 5(th) Avenue S.W.
NASDAQ: TGA Calgary, Alberta, Canada, T2P 3H5
Telephone: (403) 264-9888
INVESTOR RELATIONS Facsimile: (403) 264-9898
Anne-Marie Buchmuller
Manager, Investor Relations & EGYPT OFFICE
Assistant Corporate Secretary
Telephone: (403) 268-9868
Email: 8, Abd El-Hamid Hassan Street
investor.relations@trans-globe.com 8(th) District
Web site: www.trans-globe.com Nasr City, Cairo, Egypt
Nine Months Ended Three Months Ended
September 30 September 30
----------------------------------------------------------------------------
Share Information 2008 2007 2008 2007
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TSX: Price per share - TSX (C$)
High 5.70 6.09 5.20 5.68
Low 2.85 3.50 2.85 3.69
Close 3.35 5.03 3.35 5.03
Average daily trading volume 56,742 40,272 48,801 45,468
NASDAQ: Price per share - NASDAQ
(US$)(1)
High 5.80 5.45 5.15 5.45
Low 2.70 3.45 2.70 3.45
Close 3.07 5.03 3.07 5.03
Average daily trading volume(1) 180,939 234,995 181,142 317,863
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Figures before January 18, 2008 represent share information from the
American Stock Exchange.
Contacts: TransGlobe Energy Corporation Ross G. Clarkson
President & C.E.O. (403) 264-9888 (403) 264-9898 (FAX)
TransGlobe Energy Corporation Lloyd W. Herrick Vice President &
C.O.O. (403) 264-9888 (403) 264-9898 (FAX) Email:
trglobe@trans-globe.com Website: www.trans-globe.com Executive
Offices #2500, 605 - 5th Avenue, S.W., Calgary, AB T2P 3H5
Grafico Azioni TransGlobe Energy (TSX:TGL)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni TransGlobe Energy (TSX:TGL)
Storico
Da Lug 2023 a Lug 2024
