Release
TransGlobe Energy Corporation First Interim Report for the Three Months Ended March 31, 2005
CALGARY, ALBERTA--(CCNMatthews - May 02, 2005) - TransGlobe Energy
Corporation (TSX:TGL) (AMEX:TGA) ("TransGlobe" or the "Company") is
pleased to announce its financial and operating results for the three
month period ended March 31, 2005. All dollar values are expressed in
United States dollars unless otherwise stated. Conversion of natural gas
to oil is made on the basis of 6,000 cubic feet of natural gas being
equivalent to one barrel of oil.
/T/
HIGHLIGHTS
- Record net income in Q1-2005 of $4,507,000 ($0.08 per share).
- Record cash flow in Q1-2005 of $9,070,000 ($0.15 per share).
- Working capital of $8,399,000 with no debt.
FINANCIAL AND OPERATING UPDATE
(Expressed in 000's, except per share, price and volume amounts)
Three Months Ended March 31
-----------------------------
Financial 2005 2004 Change
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Oil and gas sales 18,863 7,897 139%
Oil and gas sales, net of royalties 13,544 5,868 131%
Operating expense 2,451 1,127 117%
General and administrative expense 734 319 130%
Stock-based compensation 351 110 219%
Depletion, depreciation and accretion
expense 3,934 1,614 144%
Income taxes 1,580 559 183%
Cash flow from operations 9,070 3,887 133%
Basic per share 0.16 0.07
Diluted per share 0.15 0.07
Net income 4,507 2,163 108%
Basic and diluted per share 0.08 0.04
Capital expenditures 3,641 2,060 77%
Working capital 8,399 4,449 89%
Common shares outstanding
Basic (weighted average) 57,250 54,049 6%
Diluted (weighted average) 60,040 56,089 7%
Sales Volumes
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Oil and liquids (Bopd) 4,361 2,425 80%
Average price ($ per barrel) 43.04 31.39 37%
Gas (Mcfpd) 3,748 2,008 87%
Average price ($ per Mcf) 5.79 5.27 10%
Total (Boed) (6:1) 4,985 2,760 81%
Operating expense ($ per Boe) 5.46 4.49 22%
/T/
EXPLORATION UPDATE
Block 32, Republic of Yemen (13.81087% working interest)
Production
The Tasour field averaged 16,167 Bopd (2,233 Bopd to TransGlobe) during
the first quarter 2005. As is typical of all the Qishn fields in the
prolific Masila basin, the economic success of the project is dependent
upon handling increased water production in a cost effective manner. The
strong natural water drive provides an exceptional primary recovery
(over 50% of the original oil in place). All the Qishn wells in Tasour
and in the Masila basin are pumped utilizing very large electric (up to
1,000 hp) submersible pumps. The power in the Tasour field is generated
by diesel powered generators, making diesel costs one of the largest
components of operating costs. In late 2004, the Joint Venture group
approved the purchase of a diesel topping plant which is expected to be
operational during the third quarter of 2005. The diesel topping plant
will produce diesel fuel from a portion of the Tasour crude oil. This is
expected to stabilize diesel costs and maintain low operating costs
which should extend the life of the field.
/T/
Q-1 2005 Tasour Production (Bopd)
Q-1
---------------------------------------------------------------------
Gross field production rate 16,167
TransGlobe working interest 2,233
TransGlobe net (after royalties) 1,567
TransGlobe net (after royalties and tax) 1,357
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/T/
Under the terms of the Block 32 production sharing agreement ("PSA")
royalties and taxes are paid out of the government's share of production
sharing oil.
Operations and Exploration
The main Tasour field is now largely developed. Therefore the primary
focus for 2005 will be exploration for new reserves. The Block 32 Joint
Venture group initially approved a six well drilling program for 2005
and recently discussed expanding the 2005 program to eight wells by
utilizing a second drilling rig.
In the first quarter of 2005 the group drilled Tasour #15, #16 and #17
on Block 32. Tasour #15 was drilled as a water injector near the central
production facility ("CPF") and found a 2.5 meter oil column. The well
was completed as a water injection well. Tasour #16 was suspended after
encountering 6.0 meters of oil pay overlying 3.0 meters of water bearing
sandstone. The dip meter indicates a structurally higher location can be
reached by sidetracking the well to the south of the current bottom hole
location. The Tasour #17 well was drilled approximately 2.0 kilometers
east of Tasour #15 to test a new structure east of the Tasour field. The
well has been plugged and suspended after encountering Qishn S-1A sand
in a structurally low position. Although hydrocarbon shows were
encountered, no tests were conducted as it was determined that the Qishn
S-1A sand was water bearing. A new 70 km 2-D seismic program is
underway, to define several interesting exploration leads located north
and west of the Tasour area.
Two development wells are planned for the main Tasour field and a deep
exploration well is planned to test formations below the producing
Tasour Qishn formation on a prospect defined on the 3-D seismic survey.
It is expected that drilling (Tasour #18) will commence at the end of
May In addition several new Qishn prospects have been identified and one
or two are expected to be drilled later in 2005.
Block S-1, Republic of Yemen (25% working interest)
Production
Production from Block S-1 is currently limited by trucking and gas
re-injection capacity. The oil production is currently being trucked 18
miles to the Jannah Hunt facility where it enters the pipeline to the
Ras Isa loading terminal on the Red Sea. The pipeline is expected to be
operational in June 2005. The 10 inch pipeline is designed to allow an
ultimate capacity of 80,000 Bopd so that future discoveries can be
placed on stream quickly. The CPF is designed for an initial capacity of
10,000 to 12,000 Bopd (2,500 to 3,000 Bopd to TransGlobe) with expansion
capabilities. The An Nagyah field production is anticipated to increase
to over 10,000 Bopd (2,500 Bopd to TransGlobe) when the facilities and
pipeline are operational.
/T/
Q-1 2005 An Nagyah Production (Bopd)
Q-1
---------------------------------------------------------------------
Gross field production rate 7,332
TransGlobe working interest 1,833
TransGlobe net (after royalties) 1,284
TransGlobe net (after royalties and tax) 1,146
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/T/
Operations and Exploration
The focus in 2005 includes the evaluation/assessment of undeveloped
discoveries (Harmel and An Naeem), new exploration on the block, and
development drilling on An Nagyah.
Two wells were drilled in the first quarter of 2005 (An Nagyah #14 and
Malaki #1). The An Nagyah #14 well was drilled to a total depth of 1,365
meters and suspended in early January 2005 as a Lam B oil well. The An
Nagyah #14 well encountered a 19 meter oil column in the Lam B (Lower
Lam) sandstone. The well was swab tested at a rate of approximately 80
barrels of light (40 degree API) oil per day. No water was produced
during the test period. This discovery is located south of the An Nagyah
field in a separate fault block. The An Nagyah #14 oil test has
identified a new exploration fairway south of the main An Nagyah field.
Additional work will be required to incorporate the well results and
remap the seismic in this area to identify future drilling locations.
Malaki #1 is located approximately nine kilometers south-east of the An
Nagyah pool. The Malaki #1 exploration well was drilled to a total depth
of 2,315 meters. The well was plugged and abandoned after encountering
minor hydrocarbon shows. The Lam A sandstone reservoirs were encountered
structurally lower than the oil/water contact in the An Nagyah field and
were water saturated.
In March/April 2005, the An Nagyah #15 well was drilled to a total depth
of 1,979 meters and completed as an Upper Lam oil well. The An Nagyah
#15 well was tested from a 747 meter horizontal Upper Lam sandstone
section at a rate of 2,625 barrels of light (43 degree API) oil per day,
84 barrels per day of water and 2.3 million cubic feet of natural gas
per day on a 48/64 inch choke at 575 psi flowing pressure. This is the
third horizontal well drilled in the An Nagyah field.
The An Nagyah #15 well was equipped in April for early production via
trucking. The drilling rig has moved and commenced drilling the
exploration prospect at Markhah #1 located approximately 50 kilometers
east/south-east of the An Nagyah field. The Markhah #1 exploration well
is primarily targeting the Lam formation in a separate structure at the
eastern end of the Block.
The An Naeem gas condensate pool is being evaluated for potential make
up gas to maintain reservoir pressure and improve oil recoveries from
the An Nagyah pool. Produced condensate could be sold with the An Nagyah
crude oil production. A gas cycling scheme to recover condensate from
the An Naeem gas condensate pool is also being studied.
In addition to An Nagyah Lam A development wells (horizontal), it is
expected that a Lam B horizontal well will be drilled to develop the Lam
B oil pool tested in the An Nagyah #3 and An Nagyah #14 wells, along
with several additional exploration wells. The 3-D seismic survey shot
in 1999 in the An Naeem area is being reprocessed to further refine
additional exploration targets for the 2005/2006 drilling program.
Production equipment was installed at Harmel #1 and Harmel #2 in March.
The wells are currently pumping at a slower rate until the wells have
cleaned up and inflow parameters can be determined. Harmel #1 has been
pumping approximately 100 bpd of oil. Harmel #2 was recently placed on
production and is recovering oil and load fluid (completion water and
spent acid). Production and test data obtained from the Harmel #1 and #2
wells will help to determine the commerciality of the medium gravity oil
(22 degree API) pool. The Harmel structure encompasses fifteen square
miles as defined by
3-D seismic and could require 80 to 90 shallow wells (600 to 800 meters
in depth) to be fully developed.
Block 72, Republic of Yemen (33% working interest)
The Block 72 Production Sharing Contract has been approved by the
Cabinet and as of April 2005 it is before the Yemen Parliament for final
approval. Following approval, the Block 72 Partnership plans to
reprocess existing seismic and to acquire new 3-D seismic to identify
drilling locations. Drilling is anticipated to commence in 2006. Any
discoveries made on Block 72 would follow a similar development program
to Block 32's whereby a separate oil processing facility and a pipeline
would be constructed to connect to the Nexen export pipeline.
Nuqra Block 1, Arab Republic of Egypt (50% working interest, Operator)
TransGlobe has obtained the existing 2-D seismic data on the Nuqra Block
and is currently reprocessing the data to improve the resolution. A new
2-D seismic acquisition program is anticipated to commence in the fourth
quarter 2005. A field geological survey is also underway to investigate
surface outcrops and oil seeps in the Nuqra area. The exploration of the
Nuqra Block is being fast tracked and will probably exceed the PSA
requirements. It is anticipated that TransGlobe will complete the
seismic acquisition by the first quarter of 2006 and will be preparing
for a two well drilling program in late 2006. This would complete all
the first period and second period PSA commitments ahead of schedule.
Canada
Production
Production in the first quarter averaged 821 Boepd, down slightly from
the fourth quarter of 2004 due to natural declines and increased
pipeline pressures in the Nevis and Twining areas. It is anticipated
that field booster compression will be installed at Nevis and Twining
during the second quarter to produce against the higher pipeline
pressure and improve well performance.
/T/
Q-1 2005 Canadian Production (Boepd)
Q-1
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TransGlobe working interest 821
TransGlobe net (after royalties) 673
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/T/
Operations and Exploration
The Company plans to drill 10 to 15 wells in Canada during 2005. The
majority of the wells will be drilled in the Nevis area, targeting
natural gas.
The Canadian 2005 drilling program is expected to commence in early May,
after spring break-up, to take advantage of lower equipment and service
prices during the summer months. The Company is currently in the process
of acquiring surface access and well license approvals for the first 8
to 10 wells in the 2005 program. It is expected that the first phase (8
to 10 wells) of the 2005 program will be drilled in May through July,
with the remainder of the 2005 program drilled during August through
October.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis ("MD&A") should be read in
conjunction with the unaudited interim financial statements for the
three months ended March 31, 2005 and 2004, the audited financial
statements and MD&A for the year ended December 31, 2004 included in the
Company's annual report. Additional information relating to the Company,
including the Company's Annual Information Form, is on SEDAR at
www.sedar.com. All dollar values are expressed in U.S. dollars, unless
otherwise stated. The calculations of barrels of oil equivalent ("Boe")
are based on a conversion rate of six thousand cubic feet of natural gas
to one barrel of crude oil.
This Management's Discussion and Analysis (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. All statements in this interim report, other than statements of
historical facts, that address future production, reserve potential,
exploration drilling, exploitation activities and events or developments
that the Company expects, are forward-looking statements. Although
TransGlobe believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions, such statements are not
guarantees of future performance and actual results or developments may
differ materially from those in the forward-looking statements. Factors
that could cause actual results to differ materially from those in
forward-looking statements include, but are not limited to, oil and gas
prices, exploitation and exploration successes, continued availability
of capital and financing, and general economic, market or business
conditions.
NON-GAAP MEASURES
Cash flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital. We consider this a key measure as it demonstrates our ability
to generate the cash flow necessary to fund future growth through
capital investment. Cash flow from operations may not be comparable to
similar measures used by other companies.
Net operating income is a non-GAAP measure that represents revenue net
of royalties and operating expenses. Management believes that net
operating income is a useful supplemental measure to analyse 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. Net operating income may not be comparable to
similar measures used by other companies.
OUTLOOK
TransGlobe has projected a 2005 capital budget of $32 million, which
remains unchanged.
- In Q1-2005, the Company spent $3.6 million of the capital budget.
- A significant portion of the capital budget will be spent in Q2-2005
on the following:
-- Completing the pipeline installation, constructing the Central
Production Facility ("CPF") and drilling at Block S-1, Yemen.
-- Drilling and facilities at Block 32, Yemen.
-- Drilling approximately 10 wells in Canada over the next three months.
The majority of the wells will be drilled in the Nevis area, targeting
natural gas. Successful wells will be tied-in during Q3-2005.
TransGlobe has projected average production volumes for 2005 to be 5,800
to 6,200 Boepd which TransGlobe is on target to meet.
- Production volumes were 4,985 Boepd in Q1-2005.
- Production volumes are forecasted to remain consistent in Q2-2005
compared to Q1-2005.
- In Q3-2005 production volumes are forecasted to increase due to
increased gas re-injection and the pipeline being commissioned at Block
S-1, planned development drilling on Block 32 and the tie-in of
successful wells to be drilled in Q2-2005 in Canada.
TransGlobe has projected cash flow from operations for 2005 to be $32
million based on an average dated Brent oil price of $38.00/Bbl and an
average AECO gas price of C$6.00/Mcf which TransGlobe is on target to
meet.
- Cash flow from operations in Q1-2005 was approximately $9.1 million.
- As budgeted and consistent with prior years royalties and taxes at
Block 32,
Yemen will increase to an estimated 55% to 61% in Q2-2005 compared to
37% in Q1-2005 resulting in a reduced cash flow from operations for the
next quarter. The Block 32 Production Sharing Agreement ("PSA") allows
for the recovery of capital costs over a two year period with 50%
recovered in the quarter expended and the remaining 50% recovered in the
first quarter of the following calendar year through reduced royalties
and taxes paid to the government. As a result, in the first quarter of
2005 TransGlobe received 63% of its working interest share of production
(after royalty and taxes) which is forecasted to decrease to 39% to 45%
(after royalties and taxes) for the balance of the year.
SELECTED QUARTERLY FINANCIAL INFORMATION
In the first quarter of each calendar year the Company's royalty and
income tax rate decreases at Block 32, Yemen due to cost recovery. This
results in an increase to cash flow from operations and net income for
the first quarter of each year.
Cash flow from operations and net income increased 43% to $9,070,000 and
487% to $4,507,000, respectively, in Q1-2005 compared to Q4-2004 mainly
as a result of royalty and income tax costs decreasing at Block 32,
Yemen in Q1-2005 due to the recovery of 50% of the 2004 capital costs
from oil production as part of the Block 32 PSA.
/T/
($000's, except per
share, price and Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
volume amounts) 2005 2004 2004 2004 2004
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Average production
volumes (Boepd)(1) 4,887 4,979 4,303 3,389 2,765
Average sales volumes
(Boepd)(1) 4,985 5,384 3,918 3,103 2,760
Average price ($/Boe) 42.04 37.45 37.12 34.25 31.44
Oil and gas sales 18,863 18,548 13,380 9,670 7,897
Oil and gas sales,
net of royalties 13,544 11,756 8,227 5,779 5,868
Cash flow from
operations 9,070 6,326 4,363 2,749 3,887
Cash flow from
operations per share
- Basic 0.16 0.12 0.08 0.05 0.07
- Diluted 0.15 0.11 0.08 0.05 0.07
Net income 4,507 768 2,541 447 2,163
Net income per share
- Basic 0.08 0.01 0.05 0.01 0.04
- Diluted 0.08 0.01 0.04 0.01 0.04
Total assets 61,232 60,522 44,478 38,798 35,753
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(1) Difference in production and sales volumes is inventory changes
at Block S-1, Yemen
/T/
RESULTS OF OPERATIONS
Cash flow from operations for the three months ended March 31, 2005
increased 133% to $9,070,000 ($0.16 per basic share and $0.15 per
diluted share) compared to $3,887,000 ($0.07 per share, basic and
diluted) in the comparable period in 2004 mainly as a result of the
following:
- sales volumes increased 81% mainly as a result of Block S-1, Yemen
commencing production at the end of Q1-2004 and production increases due
to the 2004 drilling program in Canada;
- commodity prices increased 34%; and
- increased royalties, operating costs and taxes due to higher volumes
and prices that offset the above cash increases.
Net income for the three months ended March 31, 2005 increased 108% to
$4,507,000 ($0.08 per share, basic and diluted) compared to $2,163,000
($0.04 per share, basic and diluted) in the comparable period 2004
mainly as a result of the following:
- the above items affecting cash flow also increased net income, and are
offset by:
-- increased depletion, depreciation and accretion due to higher volumes
and capital costs;
-- increased stock-based compensation, a non-cash expense, due to stock
option grants in late
Q1-2004; and
-- increased future income taxes due to increased net income related to
the Canadian operations.
/T/
OPERATING RESULTS
Daily Sales Volumes, Working Interest Before Royalties
March 31, March 31, %
2005 2004 Change
---------------------------------------------------------------------
Yemen - Oil Bopd 4,165 2,290 82%
Canada - Oil and liquids Bopd 196 135 45%
- Gas Mcfpd 3,748 2,008 87%
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Barrels of oil equivalent (6:1) Boepd 4,985 2,760 81%
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Consolidated Net Operating Results
Consolidated
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March 31, 2005 March 31, 2004
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($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil and gas sales 18,863 42.04 7,897 31.44
Royalties 5,319 11.85 2,029 8.08
Operating expenses 2,451 5.46 1,127 4.49
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Net operating income(1) 11,093 24.73 4,741 18.87
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(1) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with the Ministry
of Oil and Minerals ("MOM") in the Republic of Yemen (Q1-2005 -
$1,373,000, $3.06/Boe; Q1-2004 - $559,000, $2.23/Boe).
/T/
Segmented Net Operating Results
In 2005 the Company had producing operations in two geographic areas,
segmented as Republic of Yemen and Canada. Also, the Company had
start-up operations in a third geographic segment, Arab Republic of
Egypt. MD&A will follow under each of these segments.
/T/
Republic of Yemen
March 31, 2005 March 31, 2004
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($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 16,196 43.21 6,577 31.56
Royalties 4,841 12.91 1,811 8.69
Operating expenses 2,051 5.47 862 4.14
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Net operating income(1) 9,304 24.83 3,904 18.73
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(1) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with MOM in the
Republic of Yemen (Q1-2005 - $1,373,000, $3.66/Boe; Q1-2004 -
$559,000, $2.68/Boe.)
/T/
Net operating income in Yemen increased 138% in the first three months
of 2005 compared to the same period of 2004 primarily as a result of the
following:
- Oil sales increased 146% mainly as a result of the following:
1. Sales volumes increased 82% primarily as a result of Block S-1
production commencing at the end of Q1-2004.
/T/
Daily Sales Volumes, Working Interest March 31, March 31, %
Before Royalties 2005 2004 Change
---------------------------------------------------------------------
Bopd Bopd
---------------------------------------------------------------------
Block 32 2,233 2,290 (2)
Block S-1 1,932 - -
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Total 4,165 2,290 82
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/T/
2. Oil prices increased 37%.
- Royalty costs increased 167%. Royalties as a percent of revenue were
consistent in Q1-2005 at 30% compared to 28% in Q1-2004.
- Operating expenses increased 32% on a Boe basis mainly as a result of
the following:
1. Block 32 operating expenses increased to $4.63 per barrel in Q1-2005
compared to $4.14 per barrel in Q1-2004 primarily due to increased
diesel costs. A plant is being constructed in 2005 to manufacture diesel
from produced crude oil which will reduce the cost of purchased diesel.
The plant is expected to be commissioned in the third quarter of 2005.
2. Block S-1 has significantly higher operating costs during the initial
trucking phase, averaging $6.79 per barrel in Q1-2005. This is a
reflection of higher costs associated with trucking and higher fixed
costs per barrel until volumes are increased when full scale production
commences in 2005. Average cost per barrel is expected to be
significantly reduced after commissioning of the pipeline and with
increased production in mid 2005.
The current Block 32 PSA allows for the recovery of operating costs and
capital costs from oil production. Operating costs are recovered in the
quarter expended. The capital costs are amortized over two years with
50% recovered in the quarter expended and the remaining 50% recovered in
the first quarter of the following calendar year. The Company will
receive a larger share of production in the first quarter of each year
as 50% of the previous year's historical costs are recovered. The amount
of oil required to recover capital and operating costs will vary
depending upon the prevailing oil prices. The Company received 63% of
its working interest share of production (after royalty and tax) in the
first quarter of 2005 compared to 65% in the first quarter of 2004. The
Company expects to receive between 39% and 45% share of production
(after royalty and tax) in the balance of the year depending upon
production volumes, oil prices, operating costs and eligible capital
expenditures.
The Block S-1 PSA allows for the recovery of operating costs and capital
costs from oil production. Operating costs are recovered in the quarter
expended. New capital costs are amortized over eight quarters with one
eighth (12.5%) recovered each quarter. In addition to current ongoing
investments, the Company will also recover eligible historical costs on
a "last in, first out" basis. The Company received maximum cost oil for
the first quarter of 2005 and all of 2004. The amount of oil required to
recover capital and operating costs will vary depending upon the
prevailing oil prices, operating costs and the amount of new capital
invested. It is expected that the Company will continue to receive the
maximum cost oil resulting in a 62.5% of its working interest share of
production (net barrels, after royalty and tax) for the balance of 2005.
/T/
Canada
March 31, 2005 March 31, 2004
----------------- -------------------
($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 422 44.83 188 31.16
Gas sales (6:1) 1,953 34.74 963 31.62
NGL sales 274 33.53 161 25.75
Other sales 17 - 8 -
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2,666 36.13 1,320 30.86
Royalties 478 6.47 218 5.11
Operating expenses 400 5.42 265 6.18
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Net operating income 1,788 24.24 837 19.57
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/T/
Net operating income in Canada increased 114% in the three months ended
March 31, 2005 compared to the same period of 2004 primarily as a result
of the following:
- Sales increased 102% mainly as a result of the following:
1. Sales volumes increased 75% as a direct result of the 2004 drilling
program.
2. Commodity prices increased 17% on a Boe basis. More specifically, gas
prices increased 10% to $5.79 per Mcf in the three months ended March
31, 2005 compared to $5.27 per Mcf in the same period of 2004 and oil
and NGL prices increased 44% and 30%, respectively.
- Royalty costs increased 27% on a Boe basis. Royalties as a percent of
revenue were consistent in the three months ended March 31, 2005 at 18%
compared to 17% in the same period of 2004.
- Operating costs decreased 12% on a Boe basis mainly as a result of
wells that were placed on production in 2004, which had a lower
operating cost than the previous wells on production.
/T/
GENERAL AND ADMINISTRATIVE EXPENSES (G&A)
March 31, 2005 March 31, 2004
----------------- -------------------
($000's, except Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
G&A (gross) 949 2.10 498 1.98
Capitalized G&A (192) (0.42) (164) (0.65)
Overhead recoveries (23) (0.05) (15) (0.06)
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G&A (net) 734 1.63 319 1.27
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/T/
General and administrative expenses increased 130% and increased 28% on
a Boe basis in the first three months of 2005 compared to the same
period of 2004 as a result of the following:
- Personnel and office overhead costs increased due to additional staff.
These costs decreased $0.51 on a Boe basis.
- Public company costs increased mainly as a result of the reporting
deadline for filing annual public documents being moved to Q1-2005
compared to Q2-2004 and increased reporting requirements. These costs
increased $0.26 on a Boe basis.
- Deferred financing costs increased due to the amortization of the loan
agreement entered into in
Q4-2004. These costs increased $0.25 on a Boe basis.
- The strengthening of the Canadian dollar against the United States
dollar increased G&A costs by $0.09 per Boe.
STOCK-BASED COMPENSATION
Effective January 1, 2004 the Company adopted the new accounting
standard of the Canadian Institute of Chartered Accountants ("CICA")
section 3870, "Stock-based Compensation and Other Stock-based Payments".
This Canadian accounting standard requires the Company to record a
compensation expense over the vesting period based on the fair value of
options granted to employees and directors. Non-cash stock-based
compensation expense amounted to $351,000 in Q1-2005 compared to
$110,000 Q1-2004. The increase is mainly due to options granted in mid
March 2004 and subsequent grants to new employees.
Based on stock option grants to date, it is expected that the effect on
the balance of 2005 earnings will be approximately $180,000 with no
effect on cash flow from operations.
DEPLETION, DEPRECIATION AND ACCRETION EXPENSE (DD&A)
/T/
March 31, 2005 March 31, 2004
----------------- -------------------
($000's, except Boe amounts) $ $/Boe $ $/Boe
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Republic of Yemen 3,245 8.66 1,138 5.46
Canada 689 9.34 476 11.14
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3,934 8.77 1,614 6.43
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/T/
In Yemen, DD&A on a Boe basis increased 59% in Q1-2005 compared to
Q1-2004 primarily as a result of an increased asset base as all the
remaining costs associated with the Block S-1 major development project
were included in the depletable base. In Q1-2004, major development
project costs of $9,449,000 were excluded from the costs subject to
depletion and depreciation representing a portion of the costs incurred
in Block S-1.
In Canada, an impairment charge was recognized in Q1-2004 on costs
associated with non-Yemen foreign assets in the amount $205,000 ($4.78
per Boe). After considering this loss, DD&A on a Boe basis increased 47%
to $9.34 per Boe in Q1-2005 compared to $6.36 per Boe in Q1-2004
primarily as a result of:
- Increased finding and development costs in Canada in 2004 compared to
the previous average which increases the ratio of the depletable asset
base to reserves.
- Strengthening of the Canadian dollar against the United States dollar
which increased DD&A $0.48 per Boe (7%) through currency conversion.
INCOME TAXES
Current income tax expense in Q1-2005 of $1,373,000 (Q1-2004 - $559,000)
represents income taxes incurred and paid under the laws of the Republic
of Yemen pursuant to the PSA's on Block 32 and Block S-1. The increase
is primarily a result of production start up on Block S-1 and increased
oil prices.
The future income tax expense of $207,000 in Q1-2005 relates to a
non-cash expense for taxes to be incurred in the future as Canadian tax
pools reverse. The Company has unrecognized future tax benefits in
Canada in the amount of $595,000 which may be recognized in the future
with continued drilling successes in Canada.
CAPITAL EXPENDITURES/DISPOSITIONS
/T/
Capital Expenditures
($000's) March 31, 2005 March 31, 2004
---------------------------------------------------------------------
Republic of Yemen $ 2,491 $ 1,260
Canada 912 800
Arab Republic of Egypt 238 -
Total capital expenditures $ 3,641 $ 2,060
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
Capital expenditures in Q1-2005 are mainly comprised of the following:
Block 32, Yemen ($587,000)
- Tasour facility upgrades and drilling three wells at Tasour.
Block S-1, Yemen ($1,897,000)
- Drilling costs associated with An Nagyah #14, Malaki #1, and the
preliminary drilling costs of An Nagyah #15.
- Costs associated with the commercial development of the An Nagyah
field.
- Workover costs for the re-completion of An Nagyah #2 and #3.
- Acidization and production testing equipment costs associated with
Harmel #1 and #2.
Other, Yemen ($7,000)
- Block 72 geological and geophysical activity.
Canada ($912,000)
- Costs associated with completions and tie-ins as part of the 2004
exploration and development program and initial preparation for the 2005
drilling program to commence in Q2-2005.
- Other costs related to oil and gas lease acquisitions for future
drilling associated with the 2005 exploration and development program.
- Costs associated with leasehold improvements and office furniture for
the new head office.
Nuqra Block 1, Egypt ($238,000)
- Mainly costs associated with geological and geophysical activity.
OUTSTANDING SHARE DATA
Common shares issued and outstanding as at April 29, 2005 are 57,575,939.
LIQUIDITY AND CAPITAL RESOURCES
Funding for the Company's capital expenditures in the first quarter of
2005 was provided by cash flow from operations and working capital.
At March 31, 2005, the Company had working capital of $8,399,000, zero
debt and an unutilized loan facility of $7,000,000. Working capital
increased $5,560,000 from December 31, 2004. Accounts receivable
decreased due primarily to Block S-1 revenue receivables decreasing
$1,400,000. Block S-1 had two months of production receivable at
December 31, 2004 compared to one month of production receivable at
March 31, 2005. Accounts payable decreased due primarily to decreased
costs billed in late 2004 related to the An Nagyah facility and pipeline
at Block S-1, Yemen that were paid in Q1-2005 and less capital activity
in Canada.
The Company expects to fund the balance of its 2005 exploration and
development program (remaining budget of $29 million firm and
contingent) through the use of working capital, cash flow and possible
debt. The use of our credit facilities during 2005 is expected to remain
within conservative guidelines of a debt to cash flow ratio of less than
0.5:1. Equity financing may be utilized in the future to accelerate
existing projects or to finance new opportunities. Fluctuations in
commodity prices, product demand, foreign exchange rates, interest rates
and various other risks may impact capital resources.
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:
/T/
Nine Twelve Months
Months -----------------------------
($000's) 2005 2006 2007 2008 2009
---------------------------------------------------------------------
Office and equipment leases $ 171 $ 258 $ 233 $ 326 $ 346
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
In March 2005, the Company entered into a contract to sell 2,000
gigajoules (GJ) per day (approximately 2,000 Mcfpd) of natural gas in
Canada from April 1 to April 30, 2005 and from June 1 to October 31,
2005 for Cdn$6.95/GJ.
In June 2004, the Company entered into a one year fixed price contract
to sell 10,000 barrels of oil per month in Block 32 commencing July 1,
2004 at $33.90 per barrel for dated Brent plus or minus the Yemen
Government's official selling price differential.
Upon the determination that proved recoverable reserves are 40 million
barrels or greater for Block S-1, Yemen, the Company will be required to
pay a finders' fee to third parties in the amount of $281,000.
Pursuant to the Company's farm-in agreement on the Nuqra Concession in
Egypt, the Company is committed to spend $6 million over the next 5
years to earn its 50% working interest. As part of this commitment the
Company issued a $2 million letter of credit on July 8, 2004 to Ganoub
El Wadi Holding Petroleum Company which expires on February 14, 2007.
This letter of credit is secured by a guarantee granted by Export
Development Canada.
/T/
Consolidated Statements of Income and Retained Earnings (Deficit)
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended March 31
2005 2004
---------------------------------------------------------------------
REVENUE
Oil and gas sales, net of royalties $ 13,544 $ 5,868
Other income 5 3
---------------------------------------------------------------------
13,549 5,871
---------------------------------------------------------------------
EXPENSES
Operating 2,451 1,127
General and administrative 734 319
Stock-based compensation 351 110
Foreign exchange (gain) loss (8) (21)
Depletion, depreciation and accretion 3,934 1,614
---------------------------------------------------------------------
7,462 3,149
---------------------------------------------------------------------
Income before income taxes 6,087 2,722
---------------------------------------------------------------------
Income taxes - future 207 -
- current 1,373 559
---------------------------------------------------------------------
1,580 559
---------------------------------------------------------------------
NET INCOME 4,507 2,163
Retained Earnings (Deficit),
beginning of period (685) (6,604)
---------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT), END OF PERIOD $ 3,822 $ (4,441)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income per basic and diluted share
(Note 5) $ 0.08 $ 0.04
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
March 31, December 31,
2005 2004
---------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 7,506 $ 4,988
Accounts receivable 5,068 6,029
Oil inventory 240 389
Prepaid expenses 220 274
---------------------------------------------------------------------
13,034 11,680
---------------------------------------------------------------------
Property and equipment
Republic of Yemen 25,343 26,054
Canada 19,232 19,111
Arab Republic of Egypt 1,230 992
---------------------------------------------------------------------
45,805 46,157
Future income tax asset 2,075 2,299
Deferred financing costs 318 386
---------------------------------------------------------------------
$ 61,232 $ 60,522
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 4,635 $ 8,841
Asset retirement obligations (Note 3) 911 902
---------------------------------------------------------------------
5,546 9,743
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 4) 47,568 47,296
Contributed surplus 1,884 1,593
Cumulative translation adjustment 2,412 2,575
Retained Earnings (Deficit) 3,822 (685)
---------------------------------------------------------------------
55,686 50,779
---------------------------------------------------------------------
$ 61,232 $ 60,522
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Ended March 31
2005 2004
---------------------------------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:
OPERATING
Net income $ 4,507 $ 2,163
Adjustments for:
Depletion, depreciation and accretion 3,934 1,614
Stock-based compensation 351 110
Future income taxes 207 -
Amortization of deferred financing charges 71 -
---------------------------------------------------------------------
Cash flow from operations 9,070 3,887
Changes in non-cash working capital 2,071 (1,509)
---------------------------------------------------------------------
11,141 2,378
---------------------------------------------------------------------
FINANCING
Issue of share capital 212 85
Deferred financing costs (2) -
Changes in non-cash working capital (24) -
---------------------------------------------------------------------
186 85
---------------------------------------------------------------------
INVESTING
Exploration and development expenditures
Republic of Yemen (2,491) (1,260)
Canada (912) (800)
Arab Republic of Egypt (238) -
Changes in non-cash working capital (5,160) (3)
---------------------------------------------------------------------
(8,801) (2,063)
---------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents (8) -
---------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,518 400
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,988 4,452
---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,506 $ 4,852
---------------------------------------------------------------------
---------------------------------------------------------------------
Supplemental Disclosure of Cash Flow
Information
Cash interest paid $ - $ -
Cash taxes paid - Yemen $ 1,373 $ 559
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
Notes to the Consolidated Financial Statements
(Unaudited - Expressed in U.S. Dollars)
1. Basis of presentation
The interim consolidated financial statements of TransGlobe Energy
Corporation ("TransGlobe" or the "Company") for the three month periods
ended March 31, 2005 and 2004 have been prepared by management in
accordance with accounting principles generally accepted in Canada on
the same basis as the audited consolidated financial statements as at
and for the year ended December 31, 2004, except as outlined in Note 2.
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,
2004.
2. Changes in accounting policies
Effective January 1, 2005, CICA Accounting Guideline AcG-15
"Consolidation of Variable Interest Entities" was adopted by the
Company. AcG-15 defines a variable interest entity ("VIE") as a legal
entity in which either the total equity at risk is not sufficient to
permit the entity to finance its activities without additional
subordinated financial support provided by other parties or the equity
owners lack a controlling financial interest. The guideline requires the
enterprise which absorbs the majority of a VIE's expected gains or
losses, the primary beneficiary, to consolidate the VIE.
The adoption of AcG-15 had no effect on the Company's financial position
or results of operations.
3. Asset retirement obligations
The following table presents the reconciliation of the beginning and
ending obligations associated with the retirement of oil and gas
properties:
/T/
(000's)
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2004 $ 902
Liabilities incurred during period -
Liabilities settled during period -
Accretion 14
Foreign exchange gain (5)
---------------------------------------------------------------------
Asset retirement obligations, March 31, 2005 $ 911
---------------------------------------------------------------------
/T/
At March 31, 2005, the estimated total undiscounted amount required to
settle the asset retirement obligations was $1,322,000 (2004 -
$1,331,000). These obligations will be settled at the end of the useful
lives of the underlying assets, which currently extend up to 10 years
into the future. This amount has been discounted using a credit-adjusted
risk-free interest rate of 6.5%.
4. Share capital
The Company is authorized to issue unlimited number of common shares
with no par value.
/T/
Continuity of common shares (000's) Shares Amount
---------------------------------------------------------------------
Balance, December 31, 2004 57,176 $ 47,296
Share options exercised 400 212
Stock-based compensation related to share
options exercised 60
---------------------------------------------------------------------
Balance, March 31, 2005 57,576 $ 47,568
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted
Average
Number Exercise
Continuity of stock options (000's) of Options Price
---------------------------------------------------------------------
Balance, December 31, 2004 3,462 1.13
Granted 80 6.25
Exercised (400) 0.43
---------------------------------------------------------------------
Balance, March 31, 2005 3,142 1.36
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
Stock-based compensation
Compensation expense of $351,000 has been recorded in the Consolidated
Statements of Income and Retained Earnings (Deficit) in 2005 (2004 -
$110,000). The fair values of all common share options granted are
estimated on the date of grant using the Black-Scholes option-pricing
model. The weighted average fair market value of options granted during
the first quarter 2005 and the assumptions used in their determination
are as noted below:
/T/
Three Months Ended
March 31, 2005
---------------------------------------------------------------------
Weighted average fair market value per option (Cdn$) 3.88
Risk-free interest rate (percent) 3.75
Expected life (years) 4.00
Volatility (percent) 64.00
Expected annual dividend per share -
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
5. Per share amounts
The weighted average number of common shares and diluted common shares
outstanding during the three months ended March 31, 2005 was 57,250,000
(2004 - 54,049,000) and 60,040,000 (2004 - 56,089,000), respectively.
/T/
6. Segmented information
Three Months Ended March 31
(000's) 2005 2004
---------------------------------------------------------------------
Oil and gas sales, net of royalties
Republic of Yemen $ 11,355 $ 4,766
Canada 2,189 1,102
---------------------------------------------------------------------
13,544 5,868
Operating expenses
Republic of Yemen 2,051 862
Canada 400 265
---------------------------------------------------------------------
2,451 1,127
Depletion, depreciation and accretion
Republic of Yemen 3,245 1,138
Canada 689 476
---------------------------------------------------------------------
3,934 1,614
---------------------------------------------------------------------
Segmented operations
Republic of Yemen 6,059 2,766
Canada 1,100 361
---------------------------------------------------------------------
7,159 3,127
Other income 5 3
General and administrative 734 319
Stock-based compensation 351 110
Foreign exchange (gain) loss (8) (21)
Income taxes 1,580 559
---------------------------------------------------------------------
Net income $ 4,507 $ 2,163
---------------------------------------------------------------------
---------------------------------------------------------------------
/T/
7. Commitments
In March 2005, the Company entered into a contract to sell 2,000
gigajoules (GJ) per day (approximately 2,000 Mcfpd) of natural gas in
Canada from April 1 to April 30, 2005 and from June 1 to October 31,
2005 for Cdn$6.95/GJ.
The above includes 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. All statements in this
release, other than statements of historical facts, that address future
production, reserve potential, exploration drilling, exploitation
activities and events or developments that the Company expects are
forward-looking statements. Although TransGlobe believes the
expectations expressed in such forward-looking statements are based on
reasonable assumptions, such statements are not guarantees of future
performance and actual results or developments may differ materially
from those in the forward-looking statements. Factors that could cause
actual results to differ materially from those in forward-looking
statements include oil and gas prices, exploitation and exploration
successes, continued availability of capital and financing, and general
economic, market or business conditions.
/T/
TRANSGLOBE ENERGY CORPORATION
s/s David Ferguson
David C. Ferguson
Vice President, Finance & C.F.O.
/T/
-30-
TransGlobe Energy Corporation
Ross G. Clarkson
President & C.E.O.
(403) 264-9888
(403) 264-9898 (FAX)
or
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
or
Executive Offices
#2500, 605 -5th Avenue, S.W.,
Calgary, AB T2P 3H5
Ross G. Clarkson
President & C.E.O.
(403) 264-9888
(403) 264-9898 (FAX)
or
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
or
Executive Offices
#2500, 605 -5th Avenue, S.W.,
Calgary, AB T2P 3H5