TransGlobe's Earnings Up for Q4, Full Year
TransGlobe Energy Corp. on Thursday announced its financial and operating results for the three- and 12-month periods ended December 31, 2006. All dollar values are expressed in United States dollars unless otherwise stated.
The calculations of barrels of oil equivalent ("Boe") are based on a conversion rate of 6,000 cubic feet of natural gas to one barrel 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.
--Total revenues for 2006 were a Company-record $109 million, a 21% improvement over $90 million in 2005. --Full-year 2006 net income was $26.2 million, up 32% from $19.9 million posted in 2005. The 2006 figure represents the seventh consecutive year that TransGlobe reported positive net income. On a per share basis, the Company reported net income of $0.43 per diluted share, the highest net-income per diluted share figure in the Company's history. --Fourth quarter $4.7 million net income, $0.08 per diluted share, compared to $4.3 million, or $0.07 per diluted share in Q4-2005. --$10.4 million cash flow from operations in Q4-2006 ($0.17 per diluted share) up $1.8 million, or 21% from $8.6 million ($0.17 per diluted share). --TransGlobe successfully executed its 2006 spending program through cash and cash flow from operations. This represents the third consecutive year that the Company has achieved this result. --For the period of 2003 through 2006, total reserves have grown more than 39% on a compound average rate.
Fourth Quarter Operating Highlights:
--Production started on Osaylan discovery, Block S-1, Yemen in January 2007. --One new field (Godah) on production, Block 32 Yemen. --Two new oil discoveries Osaylan #2 and Tasour 23ST in Yemen. --Two new exploration Blocks 84 and 75, in Yemen. --Ten CBM gas wells drilled, completed and connected, Nevis, Canada.
Ross G. Clarkson, TransGlobe Energy's Chief Executive Officer and President said:
"2006 marks a true turning point for TransGlobe Energy. Our unencumbered balance sheet with more than $8.8 million of cash in the bank and increased cash flow from operations, coupled with an un-drawn $55 million credit facility, provide us with the financial strength to move TransGlobe to a new level. Further, we have more than 160 Bcf of contingent CBM resources in Canada and four new discoveries in Yemen with upside potential that we believe will be realized over time. Although we have provided our investors with a conservative baseline production forecast, we believe our recent drilling successes in Yemen and Canada, and the completion in 2007 of two years of facilities construction in Yemen, will have meaningful impact on our 2007 third and fourth quarter production."
The Company's total production during the fourth quarter of 2006 averaged 5,475 Boepd, an 11% increase from the third quarter of 2006. The increase in production over Q3-2006 is a result of production increases in Block 32 Yemen and Canada. Production from Block 32 was up due to a full quarter of production from Tasour 22ST and the start of production at Godah. In Canada production was up due to the addition of 14 new producers (3 oil, 11 gas) during the quarter. TransGlobe exited the year producing 5,369 Boepd, a 13% change from the 4,737 Boepd producing at 2005's corresponding year end date. Production is averaging 5,270 Boepd during January/February of 2007.
Block 32, Republic of Yemen (13.81087% working interest)
Operations and Exploration
Three wells were drilled during the fourth quarter resulting in a new oil discovery at Tasour 23ST, a water injection well at Tasour #24 and a potential water injection well at Godah #4.
The Tasour #23ST exploration well was drilled to a total depth of 3,139 meters and suspended as a potential upper Naifa oil well. Approximately 200 barrels of 27 API oil and 457 barrels of drilling fluids were recovered from a 10.5 meter perforated interval in the upper Naifa carbonate. The production test was terminated early due to minor mechanical issues. Well stimulation and horizontal drilling have led to the successful exploitation of the upper Naifa carbonates on other blocks in Yemen. The initial result on Tasour 23ST is very encouraging. To evaluate the new discovery, the Operator is preparing to stimulate the zone with acid, install a smaller ESP and place the well on a long term production test. It is expected that the production test will commence during the second quarter of 2007, with oil trucked to the Tasour facility for treatment and export.
The Tasour #24 well was drilled and completed as a water injection well to provide pressure support on the western side of the Tasour field.
The Godah #4 well, located approximately 3 kms east/northeast of Godah #1 (1 km north/northeast of Godah #2) was drilled to a total depth of 1,771 m. The well encountered the S-1A reservoir 19 meters structurally lower than Godah #2, below the oil/water contact for the Godah field. The well was cased and suspended as a potential water injector.
In addition a 275 square kilometer 3-D seismic acquisition program was acquired during the fourth quarter. The 3-D seismic program consisted of two parts. The first part of the program covered the Godah discovery extending to the eastern boundary of Block 32 (210 square kilometers). The second part covered an area northwest of Tasour (65 square kilometers). The new 3-D seismic is currently being processed and interpreted. The new 3-D seismic data will be an integral part of the Godah field development planned for 2007 and 2008. It is expected that Godah #5 will commence drilling in late March/early April of 2007. Several additional Godah development wells are planned for 2007.
Production averaged 12,718 Bopd (1,756 Bopd to TransGlobe) during the fourth quarter of 2006, an increase of 19% over the previous quarter. The increase is attributed to the commencement of production from the Godah field during the fourth quarter and the Tasour #22ST Qishn oil well, which commenced production on August 29.
During the fourth quarter, Godah #2 and #3 were placed on production (October 27 and November 5, respectively). Godah contributed an average 1,219 Bopd (168 Bopd to TransGlobe) during the fourth quarter. Together, the Godah #2 and #3 wells produced proximately 1,500 Bopd (207 Bopd to TransGlobe) during January and February 2007.
The initial Godah production facility is connected to the existing oil sales export line that passes through the Godah Field. Produced water was trucked to the Tasour Central Production Facility ("CPF") for treatment and disposal. A 23 km pipeline connecting the Godah production facility to the Tasour CPF was constructed during the fourth quarter. With the new pipeline operational in January 2007, the Godah production is now processed at the Tasour CPF and trucking of produced water has been discontinued. It is expected that the Godah field will be fully developed over the next two years.
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
Two exploration wells were drilled during the fourth quarter resulting in new oil discovery at Osaylan #2 and a dry well at Al Qurain #1.
The Osaylan #2 exploration well commenced drilling October 15 and was drilled to a total measured depth of 1,675 meters, targeting Alif and Lam sandstones. Osaylan #2 tested a 22 meter perforated Lam interval at a flowing rate of 1,307 barrels per day of 42.1 API oil and 629 thousand cubic feet of natural gas on a 32/64 inch choke at a flowing pressure of 425 psi. Osaylan #2 is located 1.2 kilometers west northwest of Osaylan #1 which encountered minor oil shows in the Lam formation (October 25, 2002 Press Release). The Osaylan discovery is located 18 kilometers from the An Nagyah central production facility.
The Al Qurain #1 exploration well was drilled to a total measured depth of 1,960 meters and subsequently plugged and abandoned. The Al Qurain #1 well was targeting Alif and Lam prospects.
The An Nagyah #23 well commenced drilling on December 25, 2006 and was drilled to a total depth of 2,327 meters. An Nagyah #23 was completed as a Lam B producing oil well in January 2007, after flowing at a stabilized rate of 651 barrels of light (43 degree API) oil per day and 337 thousand cubic feet of gas per day at a flowing pressure of 220 psi on a 30/64 inch choke. The well was completed in a 916 meter horizontal section in the Lam B sandstone reservoir. The well is on production through a pipeline connected to the An Nagyah facilities.
Subsequent to An Nagyah #23, Osaylan #1 was re-entered to test oil shows in the Lam formation (October 25, 2002 Press Release). The test was suspended early due to low inflow rates of 42 API oil and drilling/completion fluid. The low inflow rates were attributed to formation damage associated with the drilling of Osaylan #1 in 2002. The operator is evaluating stimulation/testing options that would be conducted using a workover rig during the second or third quarter of 2007.
The drilling rig is currently drilling a Lam A horizontal development well at An Nagyah #24.
The 610 square kilometer 3-D seismic acquisition program scheduled for 2006/2007, on the southeast part of Block S-1, has been postponed pending resolution of local labor disputes.
Production from Block S-1 averaged 9,806 Bopd (2,452 Bopd to TransGlobe) during the fourth quarter of 2006. Production was choked back to the 10,000 Bopd level in response to an increase in water production in several horizontal wells located in the western portion of the field in mid 2006. This increase in water production has been attributed in part to localized pressure drawdowns in the western portion of the field. The choked back wells have responded favorably, with water cut stabilizing. To improve production rates and field recoveries the joint venture group has approved a project to utilize natural gas from the An Naeem gas pool to maintain reservoir pressure and enhance recovery in the An Nagyah pool. The proposed project (subject to ministry approval), includes the extraction of stabilized condensate from both the An Naeem gas and the An Nagyah solution gas currently being injected. It is expected that condensate extracted from the injection gas will be mixed with oil production for export and sale in late 2007/early 2008.
The Osaylan #2 well was placed on production on January 23, 2007 at an initial rate of 750 to 800 Bopd utilizing a newly constructed well test facility. Production from the Osaylan facility is trucked to the Halewah truck terminal which was constructed for early production from the An Nagyah field.
Block 72, Republic of Yemen (33% working interest)
Subsequent to the fourth quarter 2006, the first exploration well, Nasim #1 was drilled to a total measured depth of 2,305 meters and subsequently plugged and abandoned. The Nasim #1 well tested Qishn and Naifa prospects defined by 2-D seismic. Nasim #1 was the first of a two-well commitment in the first exploration period on Block 72. A 3-D seismic program is planned for the third and fourth quarters of 2007 to reduce risk on future exploration wells. A second commitment well is scheduled to commence during the fourth quarter of 2007.
Block 84, Republic of Yemen (33% working interest)
During the fourth quarter of 2006, the Ministry of Oil and Minerals selected the joint venture group comprised of DNO ASA (operator at 34%), TG Holdings Yemen Inc. (33%) and Ansan Wikfs (Hadramaut) Limited (33%) as the successful bidder for Block 84 in the Third International Bid Round for Exploration and Production of Hydrocarbons. TG Holdings Yemen Inc is a wholly owned subsidiary of TransGlobe Energy Corporation. The award is subject to government approval and ratification of a Production Sharing Agreement.
Block 84 encompasses 731 square kilometers (approximately 183,000 acres) and is located in the Masila Basin adjacent to the Canadian Nexen Masila Block where more than one billion barrels of oil have been discovered. The Block 84 Joint Venture Group plans to carry out a 3-D seismic acquisition program and the drilling of four exploration wells during the first exploration period of 42 months.
Block 75, Republic of Yemen (25% working interest)
Subsequent to year end, TG Holdings Yemen Inc., a wholly owned subsidiary of TransGlobe Energy Corporation, agreed to participate at a 25% working interest with Occidental in Block 75. Occidental is the operator of Block 75 with a 75% working interest. Block 75 was awarded to Occidental of Yemen (Block 75), LLC in the Second International Bid Round for Exploration and Production of Hydrocarbons. The Production Sharing Agreement was initialed on January 28, 2007 and is now in the process of final government approval and ratification by parliament.
Block 75 encompasses 1,050 square kilometers (approximately 262,500 acres) and is located in the Marib Basin adjacent to Block S-1 where Occidental and TransGlobe are engaged in exploration and production operations. The Block 75 joint venture group plans to carry out a 3-D seismic acquisition program and the drilling of one exploration well during the First Exploration Period of 36 months.
Nuqra Block 1, Arab Republic of Egypt (50% working interest, Operator)
During the quarter, final preparations were made to drill two firm exploration wells (Set #1 and Narmer #1) and one optional well (West Narmer #1) in Upper Egypt. All three proposed wells are in the Nuqra sub basin in the central part of the 5.5 million acre Nuqra Block.
Drilling commenced February 18, 2007 on the first exploration well Set #1 targeting a 30-million-barrel gross unrisked prospect. The Set #1 exploration well is the first of a two-well commitment targeting Cretaceous and Jurassic prospects in the Nuqra/Kom Ombo rift basin located near Aswan, Egypt. The drilling rig will move to the second exploration commitment well at Narmer #1, following Set #1. Narmer #1 is located approximately 30 kilometers east of Set #1.
The planned, two well, exploration program will fulfill the work commitments of the first, three-year, exploration extension period approved July 18, 2006, on the 5.5 million acre Nuqra Block 1 concession. Upon expiry of the first three-year extension (July 17, 2009), there is an option to proceed with a second three-year extension and work program. The second exploration extension requires a mandatory relinquishment of 25% of the original Block and completion of a two-well drilling program. Exploitation of any discovered commercial fields will continue under a development lease for a further twenty years.
Operations and Exploration
During the fourth quarter, the Company drilled 10 (9.1 net) Horseshoe Canyon CBM gas wells in the Nevis area. The wells were completed, equipped and pipeline connected during the quarter, with production commencing throughout the month of December.
The Company acquired an additional 5,000 net acres of Crown mineral rights in central Alberta during the quarter.
Production averaged 1,267 Boepd during the fourth quarter of 2006, with an average December rate of 1,414 Boepd. Approximately 450 Boepd of Nevis gas production was shut in from mid September to mid October in response to very low spot gas prices which strengthened in late October. Fourteen new wells consisting of 3 oil wells and 11 gas wells (10 CBM) were placed on production during the quarter. Production increased to approximately 1,600 Boepd during the final week of December with the addition of the Nevis CBM gas wells.
Subsequent to year end, production has averaged 1,300 Boepd, due to production testing on the new CBM wells and the loss of approximately 160 Boepd from a new gas producer in Morningside, which has watered out. The Nevis CBM wells were selectively shut in during January to conduct mandatory pressure segregation build up tests, which has been completed. It is expected that the Nevis CBM program will contribute an additional 300+ Boepd when additional compression is installed and facility de-bottlenecking is completed in the second quarter of 2007.
2007 Production Outlook
A number of projects are underway in Yemen and in Canada that are anticipated to increase oil and gas production during 2007. The majority of these projects will be completed during the first two quarters of 2007 and therefore will not have an impact on production until the second half of the year. Therefore a "Baseline" forecast is currently estimated using only the existing production and planned development in Canada. The Baseline forecast will be updated quarterly or when the facilities and development projects are completed.
Baseline Production Forecast 2007 2006 Change(1) --------------------------------------------------------------------------- Barrels of oil equivalent per day Boepd 5,300-5,400 5,093 5% --------------------------------------------------------------------------- (1) % growth based on mid point of guidance
SUMMARY OF OPERATING AND FINANCIAL RESULTS
Cash flow from operations increased by 23% in 2006 compared to 2005 mainly as a result of a 2% increase in sales volumes attributed to the pipeline completion and development drilling on Block S-1, Yemen, new wells in Canada and a 18% increase in commodity prices, which were offset in part by increases in royalties, operating costs, general and administrative and taxes associated with the increased volumes and prices
Net income for 2006 increased 32% mainly as a result of the above increases in cash flow from operations.
Management Strategy and Business Environment
In 2007, the capital budget is focused on growing reserves and production in Yemen and in Canada. Also, a portion of the 2007 capital budget will be spent drilling two exploration wells on Nuqra Block 1 in Egypt.
The Company's financial results are significantly influenced by the oil industry business environment. Risks include, but are not limited to:
- Exploratory success.
- Crude oil and natural gas prices.
- The price differential and demand related to various crude oil qualities.
- Cost to find, develop, produce and deliver crude oil and natural gas.
- Availability of equipment and labor to conduct field activities.
- Availability of pipeline capacity.
- Foreign exchange and credit.
- Operational, safety and environmental.
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