CALGARY, ALBERTA–(Marketwired – Dec. 20, 2016) – TransGlobe Energy Corporation (TSX:TGL)(NASDAQ:TGA) (“TransGlobe” or the “Company”) announces the closing of the Canadian acquisition in the Harmattan area of west central Alberta and a mid-quarter Egypt update for the fourth quarter of 2016. All dollar values are expressed in Canadian dollars unless otherwise stated.
Acquisition Highlights- Canada
- Current production ~3,100 barrels of oil equivalent (“boe”) per day (57% liquids weighted)1
- Operatorship and high working interest in the majority of assets (~88% of current production)
- Total Proved reserves ~11.8 million boe2, 5
- Total Proved plus Probable reserves ~21.3 million boe2, 5
- Proved plus Probable NPV10 of $110 million5
- Total Proved plus Probable Reserve Life Index of 18.9 years3
- Total 145 net drilling locations: 45 Proved plus Probable locations2, 5 and 100+ additional unbooked drilling locations4
- Total acreage ~110,000 acres (~95,000 net acres)
- Total consideration of $80 million (~US$59 million) comprised of $65 million (~US$48 million) cash and a vendor take back note of $15 million5
- Effective date is December 1st, 2016
- Based on September 2016 field estimates provided by vendor.
- Gross working interest reserves before the deduction of any royalties and without including any royalty interests receivable.
- Reserves life index is calculated by dividing Proved plus Probable reserves as at September 30, 2016 by the average annual production for the period ended on that date.
- Potential unbooked drilling opportunities are based on TransGlobe internal estimates prepared in accordance with the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook“) by a non-independent qualified reserves evaluator. See “Oil & Gas Information” below.
- Reserves estimates were evaluated by DeGolyer & MacNaughton Canada Limited (“DMCL“) effective September 30, 2016 using DMCL’s September 30, 2016 forecast prices and costs in accordance with National Instrument 51-101 – Standards of Disclosure of Oil and Gas Activities (“NI -51-101“) and the COGE Handbook (the “DMCL Canadian Report“).
- Subject to customary purchase price adjustments
Acquisition Metrics – Canada
- $25,806 per flowing boe/d
- $6.78 per boe of Proved reserves
- $3.76 per boe of Proved plus Probable reserves
Harmattan Acquisition Strategic Rationale
The Harmattan acquisition provides the Company with a meaningful re-entry into Canada with concentrated, high working interest assets in proven, low risk development light oil and liquid-rich gas play types. The acquisition provides ample drilling locations and running room to increase reserves and production through horizontal drilling and multi-stage frac technology. The Harmattan acquisition meets the Company’s strategy to diversify and expand operations into lower political risk OECD countries with attractive netbacks to support growth in the current oil price environment and plays to the Company’s core strength of value creation through development drilling and reservoir management.
The acquired assets provide a stable production base (established declines of approximately 12% over the past 12 months) with embedded growth potential. In addition to the 45 net drilling locations assigned in the 2P reserves, the Company has identified an additional 100+ net locations on the acquisition lands providing a significant development growth platform. The purchase includes a 100% interest in a central oil battery and flow lines with significant under-utilized capacity allowing for future production growth. The gas production is pipeline connected to large third party gas processing facilities with spare capacity. The development nature of the acquisition complements the Company’s high impact exploration and development growth potential in Egypt.
Pro Forma TransGlobe
|Proved Reserves (Million boe)6,7||19.5||11.8||31.3|
|Proved NPV10 ($US millions)7,8||168||48||216|
|Proved plus Probable reserves (Million boe)6,7||30.3||21.3||51.6|
|Proved plus Probable NPV10 ($US millions)7,8||259||75||334|
|Proved plus Probable Reserve Life Index (years)5||6.4||18.9||9.0|
|Total Gross Acreage||1,259,087||110,000||1,369,087|
- The reserves data set out in respect of Egypt was evaluated by DMCL effective June 30, 2016 using DMCL ‘s June 30, 2016 forecast prices and costs in accordance with NI 51-101 and the COGE Handbook (the “DMCL Egyptian Report“).
- The reserves data set out in respect of Canada was evaluated by DMCL effective September 30, 2016 using DMCL’s September 30, 2016 forecast prices and costs in accordance with NI 51-101 and the COGE Handbook.
- See “Oil & Gas Information” below for certain cautionary statements regarding the pro forma disclosure set out above.
- Based on Q4 2016 production estimates.
- Reserves life index is calculated by dividing Proved plus Probable reserves as at June 30, 2016 (in the case of Egypt) and as at September 30, 2016 (in the case of Canada) by the average annual production for the periods ended on those dates.
- Gross working interest reserves before the deduction of any royalties and without including any royalty interests receivable.
- Reserves and NPV Values for Canada were derived from the DMCL Canadian Report effective September 30, 2016 and translated to US dollars using the Bank of Canada noon rate on December 19th, 2016 of 1.3397 Canadian dollars to 1.00 US dollars. Reserves and NPV Values for Egypt were derived from the DMCL Egyptian Report effective June 30, 2016 and were prepared in US dollars.
- NPV Values for Egypt and Canada presented on an after tax basis.
The acquisition was funded with $65 million in cash from the balance sheet and a 10%, 24-month vendor take back loan of $15 million.
Separately, the Company continues to actively evaluate various alternatives to refinance the convertible debenture due March 31st, 2017 and is in advanced discussions with multiple parties and expects to make a final decision in early 2017.
Mid-Quarter Operational Highlights, Arab Republic of Egypt
- Production Recovery Plan (“PRP”) is on target to achieve 13,000 to 14,000 Bopd by year end 2016
- Q4 production expected to meet or exceed guidance of 12,800 Bopd
- Production average 12,248 Bopd in October and 13,058 Bopd in November
- Development plan for the NWG 3, NWG 16 and NWG 38 area approved December 10th
- NWG 3 Early Production Facility (“EPF”) completed mid-December with first production from NWG 3 expected later this week, followed by NWG 38 prior to year-end
- Submitted 28 new NWG well locations for military/environmental approvals to explore new prospects, to appraise the oil shows/discoveries at NWG 26, 27 & 38 and to develop the northern portion of NWG in 2017
- Drilled 5 wells subsequent to Q3 release (November 7th, 2016) resulting in an oil well (Arta 73) and 4 dry holes (NWG 34, NWG 32, SWG 3, SWG 1)
- Received military approval to access South Alamein starting September 8th, 2016
- Preparing a phase 1 drilling and testing program to assess the Boraq discovery
- Targeting an initial 1 well drilling program in the Boraq area and re-entry at Boraq 2
- NW Sitra 600 km2 3D seismic acquisition expected to begin in January 2017
Production Startup at North West Gharib (“NWG”) Arab Republic of Egypt (100% working interest, operated)
The NWG development plan for the NWG 3, NWG 16 and NWG 38 area was approved on December 10th. The Company completed the NWG 3 Early Production Facility (“EPF”) in mid-December and plans first production from NWG 3 this week at an estimated initial rate of 500 to 700 Bpd of 22 API oil. The adjacent NWG 38 discovery well is pipeline connected to the EPF and is expected to commence production prior to year-end. All produced oil will be trucked from the EPF to the Company’s pipeline terminal at West Bakr K Station. The Company’s entitlement oil from NWG will be lifted and sold with the Company’s West Gharib and West Bakr entitlement oil.
2016 Drilling Program – Arab Republic of Egypt
Subsequent to the Q3 press release (November 7th, 2016) the Company drilled an additional five wells resulting in one development oil well (Arta 73) and four dry holes (NWG 34 & 32, SWG 3 & 1). Currently one rig is drilling an exploration well at SWG 2 targeting a pre-rift prospect and a second drilling rig is moving on to Arta 74 for the second of two planned Red Bed wells in the Arta field.
Arta 73 was drilled to a total depth of 4,080 feet and encountered 100 feet of gross reservoir with 75 feet net oil pay in the Arta Red Bed pool. The well is scheduled for completion and initial production in early January.
NWG 34 was drilled to a total depth of 3,450 feet targeting Pre-rift Matulla/ Raha/ Nubia clastic structures. The well encountered reservoir sands which were wet. The well was plugged and abandoned.
NWG 32 was drilled to a total depth of 4,650 feet targeting the Kareem, Asl and Lower Rudeis clastic structures. The well encountered reservoir sands which were wet. The well was plugged and abandoned.
SWG 3 was drilled to a total depth of 7,800 feet targeting Pre-rift Matulla/ Raha/ Nubia clastic structures. The well encountered reservoir sands which were wet. The well was plugged and abandoned.
SWG 1 was drilled to a total depth of 4,315 feet targeting a Kareem, Asl and Lower Rudeis clastic structures. The well encountered reservoir sands which were wet. The well was plugged and abandoned.
In addition, the Company has commenced permitting on 28 appraisal and exploration wells in NWG focused on the Red Bed discoveries at NWG 27 and NWG 38, the potential discovery at NWG 26 and additional untested exploration prospects located immediately adjacent to the NWG 3/38 development lease which was approved December 10th, 2016. It is anticipated that a number of these locations will be drilled in early 2017 as part of the 2017 capital budget.
South Alamein, Arab Republic of Egypt (100% working interest, operated)
Military access approvals for the South Alamein concession were received on September 8th, 2016. The Company is finalizing an initial drilling program targeting the Boraq area of the concession. The initial drilling campaign will consist of 1 well on the Boraq structural complex plus re-entering the Boraq 2 discovery well for additional testing. The Company is targeting to commence operations in January 2017 subject to rig approvals. Successful appraisal wells could lead to filing a Boraq development plan as early as Q2-2017 with first production targeted prior to year-end 2017. In parallel the Company will evaluate the remaining exploration prospects on the concession, targeting an exploration drilling program commencing in late 2017 and extending into 2018.
The South Alamein Concession, acquired in July 2012, contains the Boraq 2X discovery (see May 1st, 2012 press release for more details) and several additional exploration targets. The Boraq 2X discovery tested approximately 1,700 Bopd from two zones. The primary Cretaceous zone tested at a rate of 800 to 1,323 Bopd of 34 API oil with no water and a 13% pressure drawdown during a 28 hour drill stem test (DST). A secondary Cretaceous zone tested at a rate of 274 Bopd of 32-35 API oil and 4% water during a 23 hour DST. Test rates are not necessarily indicative of long-term performance but it is anticipated that the well should be capable of producing approximately 1,600 Bopd.
2017 Capital Program and Guidance
TransGlobe is in the process of integrating the Harmattan assets and developing a 2017 capital program for Canada. It is expected that the capital budget and production guidance for 2017 will be announced in early January, following Board approval.
Borrowing Base Facility Termination
The Company has cancelled its borrowing base credit facility. There were no amounts outstanding under that credit facility; however, the Company was utilizing approximately US$16.0 million in the form of letters of credit to support its exploration commitments in Egypt. The letters of credit outstanding under the borrowing base credit facility were transferred to a bilateral letter of credit facility with Sumitomo Mitsui Banking Corporation (SMBC). The issued letters of credit under the bilateral letter of credit facility are secured by cash collateral which is on deposit with SMBC. The exploration commitments are expected to be fulfilled during the first quarter of 2017.
Supplemental Oil and Gas Information Regarding the Canadian Assets in the Harmattan Area of Central Alberta
The reserves data set forth below is based the DMCL Canadian Report prepared by DMCL, an independent qualified reserves evaluator. The DMCL Canadian Report evaluated, as at September 30th, 2016, the crude oil, natural gas and NGL reserves attributed to the Harmattan assets. The reserves data summarizes the crude oil, natural gas and NGL reserves of the Harmattan assets and the net present values of future net revenue for these reserves using DMCL’s forecast prices and costs. The DMCL Canadian Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in NI 51-101 and the COGE Handbook. DMCL was engaged to provide evaluations of proved and proved plus probable reserves attributed to the Harmattan assets and no attempt was made to evaluate possible reserves. No field inspections were conducted by DMCL in connection with its evaluation. TransGlobe provided DMCL with the information received from the vendor relating to the Haramattan assets, including, but not limited to, the historical lease operating statements, land records (including encumbrances), respective well data, marketing agreements, processing agreements and the vendor’s 2015 year end reserves evaluation and reserve database for the Harmattan assets which had been prepared by the vendor’s independent reserves evaluator.
D&M has also been retained to provide an updated reserve evaluation for the Canadian assets effective December 31st, 2016 as part of the Company’s annual reserve evaluation process.
The following tables may not total due to rounding.
All dollar amounts set forth in the tables below are in Canadian dollars.
Oil and Gas Reserves – Based on Forecast Prices and Costs1
|Effective September 30, 2016||Light Crude Oil &
Medium Crude Oil
|Total Proved Plus Probable||5,314||4,384||–||–||47,444||39,481||8,078||6,419||21,299||17,383|
- The pricing assumptions used in the DMCL report with respect to the net present value of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth below. See “Forecast Prices used in Estimates“.
Net Present Value of Future Net Revenue – Based on Forecast Prices and Costs1
|Before Deducting Future Income Taxes Discounted At|
|Effective September 30, 2016
|0%||5%||10%||15%||20%||NPV/Share2 Disc. @10%||Unit Value3
|Total Proved Plus Probable||324,536||176,743||109,582||73,667||52,277||1.52||6.30|
- The pricing assumptions used in the DMCL report with respect to the net present value of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth below. See “Forecast Prices used in Estimates“. DMCL is an independent qualified reserves evaluation appointed pursuant to NI 51-101.
- Common shares outstanding 72,205,369 currently outstanding.
- The unit values are based on net reserve volumes.
Oil and Gas Properties and Wells1
|Gross Wells2||Net Wells3||Gross Wells2||Net Wells3||Gross Wells2||Net Wells3|
- Well counts are based on wellbores.
- “Gross” refers to the total wells in which the Company has an interest, directly or indirectly.
- “Net” refers to the total wells in which the Company has an interest, directly or indirectly, multiplied by the percentage working interest owned by the Company, directly or indirectly, therein.
- “Developed” means the acreage assigned to productive wells based on applicable regulations.
Forecast Prices used in Estimates1
|Light Crude Oil and
Medium Crude Oil
|Natural Gas Liquids –
|Fcst 3 Mo||50.00||60.32||51.20||2.889||9.05||18.09||40.41||63.33||1.50||0.760|
|2028+||Escalate oil, gas and product prices at 2.0% per year thereafter||2.00||0.850|
- The pricing assumptions effective September 30, 2016 used in the DMCL report with respect to the net present value of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth above. D&M is an independent qualified reserves evaluator appointed pursuant to NI 51-101.
Additional details about the Harmattan acquisition can be found on the Company’s web site: www.trans-globe.com.
Canaccord Genuity Corp. acted as financial advisor to TransGlobe in respect of the Harmattan acquisition.
TransGlobe Energy Corporation is a Calgary-based, growth-oriented oil and gas exploration and development company whose current activities are concentrated in the Arab Republic of Egypt and Canada. TransGlobe’s common shares trade on the Toronto Stock Exchange under the symbol TGL and on the NASDAQ Exchange under the symbol TGA. TransGlobe’s convertible debentures trade on the Toronto Stock Exchange under the symbol TGL.DB.