Exploration & Production | Quarterly / Earnings Reports | Third Quarter (3Q) Update | Key Wells | Production Rates
Transglobe Energy Gharib Exploration Encouraging
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TransGlobe Energy Corporation has announced its financial and operating results for the three and nine months ended September 30, 2014.
All dollar values are expressed in United States dollars unless otherwise stated.
- Third quarter production averaged 15,109 Bopd (15,132 Bopd sales);
- Spent $26.0 million on exploration and development during the quarter;
- Drilled 10 wells in the quarter resulting in 7 oil wells and one gas/condensate well (80% success);
- To-date, drilled 10 wells on North West Gharib concession, resulting in 4 oil wells (3 discovery; 1 appraisal);
- Ended the quarter with $77.9 million in cash and cash equivalents; positive working capital of $269.1 million or $185.8 million net of debt (including convertible debentures);
Corporate Summary
TransGlobe Energy Corporation's total production averaged 15,109 barrels of oil per day (Bopd) during the quarter which is down from Q2-2014 production of 16,112 Bopd.
In the Eastern Desert the Company commenced exploration on the newly acquired exploration concessions at North West Gharib (NWG), South West Gharib (SWG) and South East Gharib (SEG) with drilling on NWG and a large 3-D seismic acquisition program. The early drilling results are encouraging and in-line with our expected success rates. The Company has drilled 10 wells to date at NW Gharib resulting in three discoveries (NWG 1, 3 & 5), one successful appraisal well (NWG 16) on the NWG 3 discovery and six dry holes. Development plans are proceeding for the three new discoveries. This entails appraisal drilling and submission of development programs to EGPC. Production could start as early as the second quarter of 2015, assuming quick government approvals. The NWG 10 exploration well encountered minor oil shows and several previously unidentified faults. The NWG 10 well appears to have missed the structure and the reservoirs were encountered 600 feet lower than prognosis. Based on minor oil shows and faulting encountered in NWG 10, it is expected an additional exploration well will be scheduled for 2015 when the new 3-D seismic over the prospect area has been processed and remapped.
The acquisition of the NWG and SWG 3-D seismic programs (790 square kilometers) is completed and it is expected that the SEG 3-D (280 square kilometers) and 325 kilometers of 2-D will be acquired prior to year end. The 400 square kilometer South Ghazalat (Western Desert) seismic acquisition program is scheduled to be completed in early 2015.
Progress was made on replacing failed pumps at West Gharib during August through September. However, production continues to be adversely impacted by premature failures of the larger, replacement cavity pumps (PCPs). The smaller replacement PCP pumps appear to be performing as designed. The Company is in constructive discussions with the manufacturer to resolve the issues encountered with the faulty pumps.
Dated Brent oil prices averaged $101.82 in the third quarter of 2014. Egypt crude is sold at a quality discount to Dated Brent and received a blended price of $88.36 during the quarter. The Company had funds flow of $28.9 million and ended the quarter with positive working capital of $269.1 million or $185.8 million net of debt (the convertible debentures). The Company collected $18.9 million of accounts receivable from the Egyptian government during the quarter, resulting in an accounts receivable balance of $216.3 million as at September 30, 2014. Subsequent to the quarter the Company has lifted a half cargo in October and has an additional full cargo scheduled for November with a combined estimated value of approximately $55 to $60 million.
The Company had net earnings in the quarter of $19.2 million, which includes a $4.2 million foreign exchange gain and a $1.4 million non-cash unrealized derivative gain (which represents a fair value adjustment in accordance with IFRS, but does not represent a cash gain or a change in the future cash outlay required to repay the convertible debentures) on the convertible debentures.
The Company remains in a strong financial position and is well positioned to weather the downturn in world oil prices. The current oil price correction is part of the normal commodity cycle seen many times over the Company's history. TransGlobe's management will continue to steward the capital programs and debt levels to maintain a strong balance sheet in 2015. The Egyptian economy is improving modestly and the Egyptian government is demonstrating a strong alignment with foreign investors. The Company is in the process of reviewing its capital expenditure programs for 2015 and intends to provide 2015 Guidance later in the fourth quarter.
Management and the board of directors remain committed to expanding the Company's portfolio of assets to increase returns to shareholders and mitigate the risks inherent in a concentrated portfolio, particularly political or economic concentration. The Company will therefore continue to pursue business development opportunities both within and outside of Egypt.
Operations Update
Arab Republic of Egypt
West Gharib, Arab Republic of Egypt (100% working interest, operated)
Operations and Exploration
The Company drilled two wells during the third quarter resulting in an oil well at Hana and a multi-zone oil well at Hana West. The Hana well was drilled as a Markha water injector and a deep exploratory test to evaluate the Thebes formation. The Thebes is a potential resource type project which is characterized as a thick (400+ feet) regional carbonate with low porosity which has produced small amounts of oil on test (reported short test of up to 200 Bopd) from exploration wells drilled in the area during the 1960's and 70's. The well encountered approximately 320 feet of low porosity Thebes and was cased as a potential Thebes oil well and future water injector for the main Hana Markha pool. A portion of the Thebes was cored (87 feet) and is being analyzed prior to designing a completion test. It is expected that the Thebes will be completed and tested in late 2014/early 2015. If results from the Hana well are encouraging, additional test wells will be required to properly evaluate the potential resource recoveries and associated economics prior to a Thebes resource development. The Hana West well was completed in the Lower Rudeis and placed on production at an initial rate of 100 Bopd.
Year-to-date the Company has drilled nine wells resulting in eight oil wells and one dry hole (subsequently side tracked) at West Gharib. Following the West Gharib 2014 drilling program the rig was moved to the NorthWest Gharib concession in early September.
Production
Production from West Gharib averaged 9,092 Bopd to TransGlobe during the third quarter, a 9% (895 Bopd) decrease from the previous quarter.
Some progress was made on replacing failed pumps during August through September. However, production continues to be adversely impacted by premature failures of the larger, replacement progressive cavity pumps (PCPs). The smaller PCP pumps appear to be performing. Production to TransGlobe averaged 8,421 Bopd in October. The manufacturer of the failed PCPs completed a detailed review of the failed pumps and the manufacturing process for the pumps. Subsequent to the review, the manufacturer modified its processes and provided replacement pumps at no cost to the Company for the forty defective pumps. To date, the replacement pumps have exhibited a higher than normal failure rates with the first three pumps failing in less than a month. To mitigate additional pump failures, the Company has reduced the rotation speed by approximately 25% below the optimum design rotation speed on the remaining 10 replacement pumps installed to date. The reduced rotation speed has prolonged the pump run times but resulted in lower production of approximately 800 Bopd. The Company is in constructive discussions with the manufacturer to resolve the issues encountered with the faulty pumps.
Concurrently, the Company placed a special order for nine replacement pumps from the Company's previous pump supplier which were manufactured and arrived in Egypt during the third quarter which are being installed prior to using the remaining replacement pumps in inventory.
In addition, the Company placed a new order of PCP pumps from a third vendor for use in 2015 which are expected to start arriving in Egypt in December which will be used going forward.
It is expected that approximately 800 to 1,000 Bopd of production will be shut-in until the new pumps are optimized.
West Bakr, Arab Republic of Egypt (100% working interest, operated)
Operations and Exploration
The Company drilled three wells in the third quarter resulting in three oil wells (H-field, M-field and K-field). The wells were completed during the quarter and are currently producing 300 to 350 Bopd per well.
Subsequent to quarter end, the Company drilled an oil well/injector (H-field) and abandoned a well in K-field prior to reaching the target due to unstable wellbore conditions. The H-well was recently placed on production at 430 Bopd and will subsequently be converted to a water injector in the H-field Safra pool.
Year-to-date the Company has drilled eleven wells resulting in nine oil wells, one water injection well and one abandoned well.
The drilling rig is currently drilling in K-field and is scheduled to remain working in West Bakr until February of 2015 at which time the drilling rig will be released.
Production
Production from West Bakr averaged 5,148 Bopd to TransGlobe during the third quarter, essentially flat with the previous quarter.
September production averaged 5,980 Bopd and October production has averaged 6,114 Bopd. Production increases during September and October are attributed to new wells and successful initial results from a remedial program to re-enter suspended oil wells, evaluate un-swept oil potential, and recomplete/equip wells for production. To date, four of the identified ten wells have been recompleted and are initially contributing 240 Bopd per well of initial incremental oil production with an average initial water cut of approximately 39% (the average water cuts prior to the work overs ranged from 90 to 98%).
Operations and Exploration
The Company drilled four wells in the third quarter resulting in two oil wells (NWG 1 and 3) and two dry holes (NWG 2 and 4).
Subsequent to the quarter the Company has drilled an additional six wells resulting one oil discovery (NWG 5), one appraisal oil well (NWG 16), and four dry holes (NWG 6, 7, 10 and 17).
The NWG 1 well discovered oil in the Lower Nukhul formation immediately north of the West Gharib main Arta Lower Nukhul pool. Approximately 33 feet of net oil pay was identified on well logs and the well was cased for completion as a future oil producer. It is expected that NWG 1 will require stimulation prior to testing. An appraisal well (NWG 13) is currently being drilled.
The NWG 3 well discovered oil in the Lower Nukhul formation new pool oil discovery approximately 2.7 kilometers north of the East Arta Nukhul pool. The well encountered 42 feet of net oil pay in the Lower Nukhul formation based on well logs and oil recovered on wireline samples. The Lower Nukhul sandstone encountered in NWG 3 has similar permeability and porosity to the main Arta/East Arta wells which produced in excess of 1,000 Bopd, unstimulated. The NWG 16 well encountered oil in the Nukhul formation which will require stimulation.
The NWG 5 well discovered oil the Upper Nukhul formation south of the main Arta upper Nukhul pool. Approximately 57 feet of net oil pay was identified on well logs and the well was cased for completion as a future oil producer. It is expected that NWG 5 will require stimulation prior to testing, which is similar to wells in the main Arta upper Nukhul pool.
The NWG 10 well was drilled to a total depth of 6,970 feet and subsequently abandoned. The well encountered minor oil shows and several previously unidentified faults. This changed the structural configuration of the prospect which was originally defined by three exploration dry holes (circa 1999-2006) and 3-D seismic data (circa 2000). The NWG 10 well appears to have missed the structure and the reservoirs were encountered 600 feet lower than prognosed. However, based on the shows and faulting encountered in NWG 10, it is expected an additional exploration well will be scheduled for 2015 when the new 3-D seismic over the prospect area (acquired this quarter) has been processed and remapped. The primary targets are the Markha/Rudeis sands similar to the Hana/Hana West and West Bakr K & M fields approximately 10 kilometers north and west of NWG 10.
The Company is preparing to file development plans for the discoveries at NWG 1, 3 and 5 immediately after the appraisal wells are completed in December and January. This should allow the Company to bring on new oil production from these areas in the first half of 2015. The number of potential development locations will be determined once appraisal drilling results are integrated into the current mapping.
The two drilling rigs are scheduled to remain in NWG for the balance of the year primarily targeting appraisal wells on the discoveries to date (NWG 1, 3 & 5) along with a completion/testing program starting in late November/December. Depending on the timing of the appraisal wells, additional exploration drilling could be completed prior to year end at NWG 8, 9 and 11.
New Exploration Blocks, Eastern & Western Desert (100% working interest, operated)
North West Gharib (NWG), South West Gharib (SWG), South East Gharib (SEG) and South Ghazalat
Exploration Seismic
Based on surface and remote-sensing mapping, the Company believes the same structural configuration that created the pools found in the West Gharib concession is present in the NWG, SWG and SEG blocks. The historical field size distribution data indicates that the average field size in the broader onshore Gulf of Suez (Eastern Desert) area is roughly 20 million barrels per field of recoverable resource. Using sparse and old 2-D seismic data, the Company has identified up to 15 areas of interest ("leads") in the NWG block, four leads on the SWG block and two leads on the SEG block that will be followed up and further refined by field mapping and the high-resolution seismic acquisition program.
The Company commenced a large (1,000+ square kilometers of 3-D and 300+ kilometers of 2-D) seismic acquisition program for the Eastern Desert. This will be followed with an additional 400+ square kilometers of 3-D seismic acquisition in the Western Desert (South Ghazalat concession).
The acquisition of the NWG and SWG 3-D seismic programs (790 square kilometers) is completed and it is expected that the SEG 3-D (280 square kilometers) and 325 kilometers of 2-D will be acquired prior to year end. The 400 square kilometer South Ghazalat seismic acquisition program is scheduled to be completed in early 2015. The total seismic acquisition program (2014/2015) is expected to cost $36 million.
It is expected that mapping will commence on the NWG 3-D area by early 2015 to mature additional prospects and well locations. The SWG, SEG and South Ghazalat 3-D seismic mapping will follow NWG mapping as the processed data is available during 2015.
North West Sitra, Arab Republic of Egypt (100% working interest - pending ratification)
EGPC announced that TransGlobe was the successful bidder on the North West Sitra (NW Sitra) concession (100% working interest) in the 2014 EGPC bid round which closed on July 7, 2014. It is anticipated that the ratification approval process of the new concession could be completed by late 2014.
The 1,946 square kilometer (480,850 acre) NW Sitra concession is located in the Western Desert immediately to the west of the company's South Ghazalat concession in the prolific Abu Gharadig basin. The Company has committed to acquire a minimum of 300 square kilometers of 3-D seismic and drill two exploration wells in the first exploration phase.
The concession has a 7 year exploration term which will commence when it has been passed into law. The seven year term is comprised of two 3.5 year (42 month) exploration phases. The new concession provides for the approval of 20 year development leases for commercial discoveries.
East Ghazalat, Arab Republic of Egypt (50% working interest)
Operations and Exploration
The Company participated in one gas/condensate appraisal well (North Dabaa 2) during the third quarter. Subsequent to the quarter, the Company is participating in a horizontal development well the Safwa field.
Year-to-date the Company has participated in four wells resulting in two Safwa oil wells, one North Dabaa gas well and one dry hole.
The North Dabaa 2X well, an appraisal well to the initial North Dabaa 1X gas/condensate discovery that was drilled in 2013 (press release November 13, 2013), was drilled to a total depth of 14,237 feet and cased as a Jurassic gas condensate well during the quarter. The North Dabaa 2X well was tested (press release September 2, 2014) and shut-in for an extended build-up period. Based on the preliminary interpretation of the bottom hole pressures, the North Dabaa 2X well appears to be in a small gas/condensate pool which is not connected to the North Dabaa 1X pool. The operator is currently evaluating the results of the North Dabaa wells (1X and 2X) to determine how best to bring the project on production.
Production
Production from East Ghazalat averaged 1,316 Bopd (658 Bopd to TransGlobe) during the third quarter, a 128 Bopd (16%) decrease to TransGlobe from the previous quarter. Production decreases are attributed to natural declines.
The Safwa field production averaged 1,162 Bopd (581Bopd to TransGlobe) in October.
South Alamein, Arab Republic of Egypt (100% working interest, operated)
Operations and Exploration
The Company did not plan for any wells in 2014 due to the prolonged delays in receiving military approvals for new wells in the central portion of the concession which includes the Boraq discovery. The Company has negotiated and received EGPC approval to suspend the final exploration period effective July 8, 2012. The suspended area is approximately 800 square kilometers which has been deemed non-accessible by the military due to ongoing training and other activities in the area. The South Alamein concession was scheduled to reach the end of the final exploration period on April 4, 2014. Effective April 4, 2014 the remaining exploration lands outside of the restricted access zone were relinquished in accordance with the concession agreement. The relinquished lands were evaluated and were not considered prospective. The remaining lands in the South Alamein concession agreement are extended until such time as military access is approved, at which time the Company will have approximately 20 months to complete additional exploration and appraisal in the final exploration phase. All other provisions of the South Alamein concession agreement remain in place. The current South Alamein concession lands include the Boraq discovery and the remaining exploration prospects of interest. The Company and the Ministry of Petroleum are working together to engage the military and find solutions to obtain access to the remaining concession area.
Republic of Yemen
Block 32, Republic of Yemen (13.81% working interest)
Operations and Exploration
No wells were drilled during the second quarter.
Production
Sales production from Block 32 averaged 1,695 Bopd (234 Bopd to TransGlobe) during the third quarter. The reported gross sales production rate represents the amount of oil that was lifted and sold during the quarter. It is expected that sales production rates and the field production rates will vary quarter to quarter depending on the timing of tanker liftings during the respective quarter.
The actual field production during the second quarter averaged 1,532 Bopd (212 Bopd to TransGlobe) which is approximately 102% higher than the previous quarter. Production increases are attributed to improved production uptime. Production continues to be partially impacted by pipeline interruptions and general service/supply interruptions.
Production from the block averaged 1,615 Bopd (223 Bopd to TransGlobe) during October.
Block 72, Republic of Yemen (20% working interest)
Operations and Exploration
No new wells were drilled during the quarter. The joint venture partners initially approved the Gabdain #3 exploration well in the 2013 budget, subject to the resolution of logistic/security issues in the area which have not been resolved to date. The well was included in the 2014 exploration budget subject to resolution of tribal issues in the area. The Company is not expecting this well to be drilled in 2014.
Block S-1, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the second quarter.
Production
Field production was zero during the second quarter and third quarter due to an attack on the sales pipeline on February 24, 2014. The pipeline attack related primarily to unresolved contractor issues with local tribes. Negotiations have been hampered by on-going tribal disputes throughout Yemen. When a settlement is reached it is expected that the operations and production could commence within a few days.
Block 75, Republic of Yemen (25% working interest)
Operations and Exploration
No wells were drilled during the quarter.
Future drilling has been suspended pending resolution of logistics and security concerns.
Management Strategy and Outlook
The Q4-2014 outlook provides information as to management's expectation for results of operations for Q4-2014. Readers are cautioned that the Q4-2014 outlook may not be appropriate for other purposes. The Company's expected results are sensitive to fluctuations in the business environment and may vary accordingly. This outlook contains forward-looking statements that should be read in conjunction with the Company's disclosure under "Forward-Looking Statements".
Q4-2014 Outlook
It is expected that fourth quarter production will be in the 15,000 Bopd range. Assuming 15,000 Bopd for the fourth quarter, total production for 2014 would average approximately 16,000 Bopd.
With average production at 16,000 Bopd for 2014, funds flow from operations would be approximately $122.5 million ($113.2 million excluding the $9.3 termination fee from Caracal) assuming an average Dated Brent oil price of $82.5/Bbl in the fourth quarter. The funds flow sensitivity to a $10/Bbl change in Brent for the balance of the year is approximately $3.5 million.