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 (AIM & TSX: “TGL” & NASDAQ: “TGA”) (“TransGlobe” or the “Company”) announces a Q1 financial, operations and corporate update. All dollar values are expressed in US dollars unless otherwise stated.
- Business continuity plans have been activated across our locations in response to COVID-19 with no health and safety impacts or disruption to production;
- The previously announced ~80% reduction in 2020 capital program has been fully implemented;
- The Company has reduced monthly G&A costs across the business by ~35% through headcount reduction, universal salary rollbacks and reducing all discretionary expenditures;
- The Company currently holds cash of $26.7 million;
- Negotiations continue with the Egyptian government to amend, extend and consolidate the Company’s Eastern Desert concession agreements;
- Production guidance for 2020 remains unchanged at an average of 13,300 to 14,300 Boepd;
- Production averaged ~14,965 Boepd in Q1 2020 to date (January ~15,188 Boepd, February ~15,169 Boepd and March to date ~14,551 Boepd) versus 15,345 Boepd in Q4 2019;
- A 452 Mbbls cargo of Gharib blend crude was lifted in mid-March with proceeds (inclusive of hedging gains) of $14.6 million anticipated in April;
- Sold ~758.5 Mbbls to EGPC in Q1 2020 for net proceeds of ~$37.3 million;
- Drilled a Yusr development well in Egypt (HW-2A) with rig release imminent;
- Drilled a 2-mile horizontal Cardium development well in the South Harmattan area, Canada (100/13-16-029-03W5/0) and released rig;
Production Summary (WI before royalties and taxes):
|(Boepd)||Q4 2019||Jan 2020||Feb 2020||Mar 2020
(to Mar 28th)
During the quarter, production decreased marginally due to natural declines in Egypt and Canada, with March production impacted by severe weather in Egypt and the shut-in for 13 days of the 2-20 well in Canada while drilling a well from the same location.
Please see the table entitled “Production Disclosure” at the end of this news release for the detailed constituent product types and their respective quantities measured at the first point of sale for all production amounts disclosed in this news release on a Bopd and Boepd basis.
Arab Republic of Egypt
Western Desert – South Ghazalat (100% WI)
SGZ-6X well is producing from the Upper Bahariya reservoir at a rate restricted to a field estimated 200 – 250 Bopd light and medium crude to evaluate the well, manage the reservoir and optimize the separation of oil, gas and water.
Eastern Desert (100% WI)
During the first quarter of 2020, the Company drilled a development oil well in the Eastern Desert at West Bakr. The HW-2A development well was drilled to a total depth of 1,639 meters. Due to stuck pipe, only the Yusr-B reservoir was fully logged and evaluated with an internally estimated 0.3 meters of net oil pay. The other Yusr reservoirs and the upper Bakr reservoir, though all exhibiting good oil shows, were not logged at this time. HW-2A is expected to be completed in April 2020 as a producer on 5.4m of oil bearing Yusr-C reservoir observed on the mud logs. The SHAMS-2 rig will be demobilized following the HW-2A completion.
Discussions with our joint venture operating partner are ongoing to reduce operating expenditures. Any material operating cost reductions in Egypt will require the assistance of the Company’s Egyptian joint venture partner, the Egyptian General Petroleum Corporation (“EGPC”);
Constructive negotiations with EGPC to amend, extend and consolidate the Company’s Eastern Desert concession agreements have continued through the period, with both parties recognizing the attractiveness of a revised agreement to stabilize and ultimately improve investment in production, following a return to a more normalized commodity price environment.
A 2-mile Cardium development well has been successfully drilled and the rig released. Stimulation and equipping for production will await improved oil prices. By extending the well trajectory by a further 218 meters into an adjacent section, this well holds an additional 7.5 sections of land in the South Harmattan fairway. Prudently extending the well allowed TransGlobe to cost effectively secure future upside potential in South Harmattan.
The 2-mile horizontal 2-20 well, completed in Q4 2019 and de-risking the South Harmattan fairway, continues to produce at field estimated rates of 234 Boepd (197 Bopd light oil, 119 Mcf/d gas, 18 Bopd NGL). The Company is very encouraged that production performance remains in line with Company expectations for this significant new resource play.
Crude oil prices in Western Canada have been significantly impacted by the current oversupply into the market exacerbated by the COVID-19-related demand contraction. TransGlobe’s light oil production continues to be produced at a positive field netback. In addition, natural gas prices have been relatively strong through the first quarter averaging Cdn $1.83/MMbtu. Nonetheless, the Company is exploring all avenues with its contractors and suppliers to reduce operating costs in its Canadian operations.
The Company is prudently conserving cash to proactively manage its balance sheet in the current low commodity price environment.
In addition to the previously announced 80% reduction in the 2020 capital program, the Company has undertaken a G&A cost reduction exercise across all locations through staff reductions, salary rollbacks and reducing all discretionary expenditures. This also includes a rollback of non-executive director remuneration of 10%. The Company anticipates these actions will reduce on-going monthly G&A by ~35%, but there will be non-recurring restructuring charges that will impact the Q1 and Q2 results.
The Company remains in constant communication with its lenders (Mercuria Energy Trading and ATB Financial) and does not anticipate deviating from its intended debt reduction schedule.
In this period of extreme volatility, the Company remains forward looking and prepared to use its operational control to take advantage of any sustained upward movement in oil price. TransGlobe continues to be vigilant for attractive M&A opportunities.
The Company has had no reported cases of COVID-19 among its staff, contractors or joint venture partners. Business continuity plans have been implemented in all our locations and operations continue as normal.
Randy Neely, President and CEO comments on the year ahead:
“Along with the actions taken to reduce spending and remain solvent we are closely monitoring our liquidity and access to credit. We have modeled the current year under current forward anticipated commodity prices, adjusting for our reduced capital plan, reduced G&A, as well as planned operating cost reductions, and remain confident that the Company will remain liquid for at least the next 12 months.
We have taken immediate and prudent action on Corporate operations to mitigate the effects caused by the impact on oil demand by COVID-19, compounded by oil oversupply resulting from the breakdown in OPEC+. While we believe it would be easy to focus on the short term alone, that would be a mistake. The fundamentals of the energy market and its direction of increasing consumption remain unchanged in the medium and long term, and we are not alone in believing that oil and gas will continue to be major components of the energy market for many years to come. While managing our balance sheet and preserving cash are the right actions to take today to ensure the Company’s survival through these challenging times, one thing we can be sure of is the pandemic will pass, so we must also secure the long-term future of the Company for our investors. Therefore, management and the Board of Directors will continue to take the necessary steps to ensure we are positioned to grow and remain relevant to investors, through Company actions and, potentially, appropriate M&A to add resilience. Our focus will continue to be on improving the terms of our existing concessions to encourage increased investment from greater cash flows, and positively leaning into the energy transition as the market recovers.”
TransGlobe Energy Corporation is a cash flow focused 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 and the AIM market of the London Stock Exchange under the symbol TGL and on the NASDAQ Exchange under the symbol TGA.