This Announcement contains inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 (“MAR”). Upon the publication of this Announcement, this inside information is now considered to be in the public domain.
CALGARY, Alberta – TransGlobe Energy Corporation (“TransGlobe” or the “Company”)(AIM & TSX: “TGL” & NASDAQ: “TGA”) announces an amendment to its 2020 capital budget and guidance.
The 2020 production outlook for the Company is provided as a range to reflect timing and performance contingencies.
Global reaction to the spread of COVID-19 and the resultant reduction in oil demand has negatively affected current and future forecasts of oil prices in 2020. This has been compounded by OPEC+, led by Saudi Arabia and Russia, failing to reach an agreement on constraining output in face of lower global demand to support global oil prices and Saudi Arabia and Iraq’s stated intention to discount April deliveries and increase supply into the market. Oil prices are now markedly lower than those the Company used as the basis for its 2020 capital program.
TransGlobe maintains a strong balance sheet with modest debt, and its operated 100% position across its producing assets gives it significant capital flexibility and a high degree of discretion in its forward investment program. The Company intends to use all available tools to minimize balance sheet risk and position itself for future success.
The Company has re-evaluated its priorities in the short term and is taking decisive action to reduce its previously announced capital program in 2020, and focus only on those investments that are critical to HSE and value preservation. In addition, and to balance the reduction in capital investment, the Company is analyzing operating costs both in Egypt and Canada to identify all possible optimization opportunities.
In light of the global oil price disruption, the Company has decided to suspend its first quarter dividend payment to manage cash, until such a time that it is appropriate to reinstate. The Board of Directors will evaluate its decision on a semi-annual basis going forward. TransGlobe regularly communicates with its lenders, with current long term debt outstanding of $37 million and remains confident in its ability to weather the current oil price disruption. The Company currently holds $26.5 million in cash on hand.
Contingency plans have been implemented to protect TransGlobe’s staff and contractors and ensure business continuity in light of COVID-19. At this time, the virus is not expected to have a significant impact on the Company’s day-to-day operations.
As a result of the reduced 2020 capital program, total corporate production is now expected to range between 13.3 and 14.3 Mboepd (mid-point of 13.8 Mboepd) for 2020 with a 93% weighting to oil and liquids. Egypt oil production is expected to range between 11.3 and 12.1 Mbopd (mid-point of 11.7 Mbopd) in 2020. Canadian production is expected to range between 2.0 and 2.2 Mboepd (mid-point of 2.1 Mboepd) in 2020. The 2020 mid-point production guidance broken out by product type is summarized below:
|Mid-point production guidance||Egypt||Canada||Total|
|Light and medium crude oil (Bbls/d)||957||706||1,663|
|Heavy crude oil (Bbls/d)||10,743||–||10,743|
|Natural gas (Mcf/d)||–||5,394||5,394|
|Natural gas liquids (Bbls/d)||–||495||495|
The Company is not providing guidance on its estimated funds flow from operations for 2020 given funds flow from operations and inventory in any given period are dependent upon the timing and market price of crude oil sales in Egypt, each of which is uncertain.
The below chart provides a comparison of well netbacks in the Company’s Egyptian and Canadian assets under multiple price sensitivities. A typical Cardium well produces both oil, natural gas, and NGLs. The price of each commodity varies significantly, therefore the below chart presents the netback of each revenue stream separately.
|Benchmark crude oil price ($/Bbl)||30||40||50||60||70|
|Benchmark natural gas price ($/Mcf)||0.75||0.95||1.1||1.3||1.5|
|Egypt – crude oil1||(2.07||)||2.06||5.84||8.07||10.31|
|Canada – crude oil2||13.94||22.74||31.04||39.28||47.5|
|Canada – natural gas and NGLs2||(2.28||)||(0.82||)||0.1||1.36||2.9|
|1 Egypt assumptions: using anticipated 2020 Egypt production profile, Gharib Blend price differential estimate of $12.00/bbl applied consistently at all price points, concession differentials of 4%, 5% and 3% applied to WG/WB/NWG, respectively, operating costs estimated at ~$9.50/bbl, and maximum cost recovery resulting from accumulated cost pools in WG and NWG.|
|2 Canada assumptions: using anticipated 2020 Canada production profile, Edmonton Light price differential estimate of C$5.40/bbl, Edmonton Light to Harmattan discount of C$2.50 per bbl, operating costs estimated at ~C$11.40/boe, NGL mixture price at 45% of Edmonton Light, and takes into consideration Canadian tax pools.|
2020 Revised Capital Budget
The Company’s revised 2020 budgeted capital program is $7.1 million (before capitalized G&A) and includes $5.0 million for Egypt and $2.1 million for Canada. This reduced plan includes two wells (one in Egypt and one in Canada) that were spudded prior to the recent oil price disruption and capital related to HSE, select recompletions and workovers as well as certain land retention commitments.
The $5.0 million Egypt program is 100% allocated to development. The primary focus of the 2020 Egypt budget is the drilling of the HW-2A development well at West Bakr, targeting the Yusr sands. This well spudded prior to the price disruption. Other expenditures include required HSE equipment, contractual training bonuses and select recompletion and well optimization projects that have robust economics even in low price environments.
The $2.1 million Canada program consists of one horizontal (multi-stage stimulated) well targeting the Cardium light oil resource in South Harmattan (the 100/13-16-029-03W5/0 well). This well also spudded prior to the price disruption. The well will be drilled but will not be completed in order to preserve the economic value of the flush production that comes from the initial phase of production for this type of well.
The revised 2020 capital program is summarized in the following table:
|TransGlobe 2020 Capital ($MM)||Gross Well Count|
|1 Other includes completions, workovers, recompletions and equipping.|
|This table may not total due to rounding.|
TransGlobe’s operations expose it to fluctuations in commodity prices, interest rates and foreign currency exchange rates. TransGlobe monitors and when appropriate, uses derivative financial instruments to manage its exposure to these fluctuations. Each of TransGlobe’s hedging transactions are related to an underlying financial position or future crude oil and natural gas production. The Company had the following 2020 hedges in place as at March 1, 2020:
|Financial Brent crude oil contracts|
|Jul 2020 – Dec 2020||3-Way Collar||300,000||50,000||54.00||70.00||45.00|
|Mar 2020 – Jun 2020||3-Way Collar||320,000||50,000||54.00||70.00||46.50|
|Mar 2020 – Jun 2020||3-Way Collar||100,000||25,000||55.00||72.70||45.00|
TransGlobe believes by taking these swift cost cutting measures that the Company will be positioned to take advantage of opportunities for growth that may be created in these disruptive times. In addition, the Company will continue to monitor commodity prices and can react positively to improvements if warranted. In the meantime all of our staff are currently safe and continuing to work to maximize shareholder value.