TransGlobe Energy Corporation Third Interim Report For The Three And Nine Months Ended September 30, 2004.CALGARY Calgary (kăl`gərē), city (1991 pop. 710,677), S Alta., Canada, at the confluence of the Bow and Elbow rivers. The largest city in Alberta and the fastest-growing major city in Canada, Calgary is a corporate, transportation, and financial , Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. -- TransGlobe Energy Corporation ("TransGlobe" or the "Company") (AMEX AMEX See: American Stock Exchange :TGA See TARGA. TGA - Targa Graphics Adaptor ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :TGL TGL Taeglich (German: daily) TGL Touch and Go Landing (aircraft flight training) TGL Temporary Guidance Leaflets TGL Technische Güte und Lieferbedingungen (German) ) is pleased to announce its financial and operating results for the three and nine months ended September September: see month. 30, 2004. All dollar values are expressed in United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. dollars unless otherwise stated. Conversion of natural gas to oil is made on the basis of 6,000 cubic feet of natural gas being equivalent to one barrel barrel: see English units of measurement. of crude oil. HIGHLIGHTS - Record average sales volumes of 3,918 Boepd and record average production volumes of 4,303 Boepd in Q3 - October October: see month. production volumes averaged in excess of 4,500 Boepd - Block 32, Republic of Yemen Noun 1. Republic of Yemen - a republic on the southwestern shores of the Arabian Peninsula on the Indian Ocean; formed in 1990 Yemen Aden-Abyan Islamic Army, Islamic Army of Aden, Islamic Army of Aden-Abyan, IAA - Yemen-based terrorist group that supports (13.81% Working Interest) - Tasour #13 completed at 2,240 Bopd (309 Bopd to TransGlobe) - Tasour #14 completed at 2,820 Bopd (389 Bopd to TransGlobe) - Block S-1, Republic of Yemen (25% Working Interest) - Development oil wells completed at An Nagyah #9, #10 and #11 - Trucking production increased to approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 5,000 Bopd (1,250 Bopd to TransGlobe) in October - Facilities and pipeline project commissioning expected June June: see month. 2005 - Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of - Drilled seven gas wells in Q3 at Cynthia Cynthia goddess of the moon. [Gk. Myth.: Kravitz, 72] See : Moon , Gadsby Gadsby could refer to:
v. twined, twin·ing, twines v.tr. 1. To twist together (threads, for example); intertwine. 2. To form by twisting, intertwining, or interlacing. 3. and Nevis - 100% successful - Q3 cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses of $4,363,000 and net income of $2,541,000 OUTLOOK Total Company production in October is in excess of 4,500 Boepd due to increased trucking volumes from An Nagyah on Block S-1 in Yemen Yemen (yĕm`ən), officially Republic of Yemen, republic (2005 est. pop. 20,727,000), 207,300 sq mi (535,800 sq km), SW Asia, at the southern edge of the Arabian peninsula. and the addition of new wells in Canada and Block 32. The Company's 2004 exit production rate is now expected to be over 5,000 Boepd. The Block S-1 development and the new Canadian New Canadian Noun Canad a recent immigrant to Canada production is expected to increase the Company's total production to approximately 6,000 Boepd by mid- mid- pref. Middle: midbrain. 2005. On the financial front, cash flow from operations and net income are higher on both the three and nine month comparisons to the same period in 2003. The cash flow from operations and net income would have been even higher if the full Block S-1 production had been sold in the third quarter. There were no scheduled tanker liftings for Block S-1 production in August, September and October which resulted in an increase in oil inventory. The inventory at September 30 was approximately 38,000 barrels (net TransGlobe barrels after subtracting the Yemen government's production sharing oil). Vintage
Vintage, in wine-making, is the process of picking grapes and creating the finished product. A vintage wine is one made from grapes that were all, or primarily, grown in a single specified year. and TransGlobe are working on a new marketing arrangement to allow for more regular tanker liftings and thereby reduce significant oil inventories in the future. Total consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: sales volumes averaged 3,918 Boepd in Q3 whereas total consolidated production volumes averaged 4,303 Boepd with the difference being an increase to inventory booked on Block S-1.
FINANCIAL AND OPERATING UPDATE
(Expressed in thousands of U.S. Dollars)
Three Months Ended Nine Months Ended
Sept.30 Sept.30
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Financial 2004 2003 Change 2004 2003 Change
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Oil and gas revenue,
net of royalties 8,227 4,159 98% 19,874 12,673 57%
Operating expense 1,772 828 114% 4,251 2,585 64%
General and
administrative
expense 605 168 260% 1,842 783 135%
Depletion,
depreciation and
accretion expense 2,601 1,902 37% 6,149 4,961 24%
Income taxes 416 929 (55)% 2,195 1,796 22%
Cash flow from
operations 4,363 2,193 99% 10,999 7,453 48%
Basic and diluted
per share 0.08 0.04 0.20 0.14
Net income 2,541 291 773% 5,151 2,492 107%
Basic per share 0.05 0.01 0.10 0.05
Diluted per share 0.04 0.01 0.09 0.05
Capital expenditures 7,641 3,445 122% 15,292 10,219 50%
Working capital (1,203) 2,137 (156)%
Common shares
outstanding
Basic
(weighted average) 54,081 51,949 4%
Diluted
(weighted average) 56,376 53,091 6%
Sales volumes
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Oil and liquids
(Bopd) 3,274 2,514 30% 2,818 2,400 17%
Average price
($ per barrel) 38.56 27.97 38% 35.24 27.79 27%
Gas (Mcfpd) 3,865 1,105 250% 2,66 1,030 159%
Average price
($ per Mcf) 4.92 5.24 (6)% 5.05 5.47 (8)%
Total (Boed) (6 : 1) 3,918 2,698 45% 3,263 2,572 27%
Operating expense
($ per Boe) 4.91 3.34 47% 4.75 3.68 29%
EXPLORATION UPDATE Block 32, Republic of Yemen (13.81087% working interest) The Tasour #13 step-out appraisal well was drilled on the western flank flank (flank) the side of the body between ribs and ilium. flank n. 1. The side of the body between the pelvis or hip and the last rib; the side. 2. of the Tasour field. The Tasour #13 well was put on production with initial production of 2,240 barrels of oil per day (309 barrels of oil per day to TransGlobe) and 5,740 barrels of water per day. Subsequent to the third quarter, the drilling rig was moved to Tasour #14, one of several development locations within the western field extension defined by Tasour #13. The Tasour #14 well was drilled approximately 900 m east of Tasour #13. Tasour #14 was put on production with initial production of 2,820 barrels of oil per day (389 barrels of oil per day to TransGlobe) and 1,330 barrels of water per day. Following Tasour #14, the drilling rig went to an adjacent non-owned block as per the terms of the rig sharing contract with Block 53. It is anticipated that the drilling rig will return to Block 32 early in 2005 to commence drilling on the potential eastern extension of the Tasour field in addition to several development/appraisal wells planned in 2005. The oil production from the Tasour Field is expected to average approximately 18,000 Bopd during the fourth quarter of 2004, of which TransGlobe's working interest share is approximately 2,486 Bopd. Block S-1, Republic of Yemen (25% working interest) During the quarter, three producing oil wells (An Nagyah #9, #10 and #11) and one exploratory dry hole (Al Hareth Hareth (hā`rĕth), in the Bible, forest, apparently near Adullam. #1) were drilled. The An Nagyah #9 well was drilled to a total depth of 1,146 meters and was completed as an Upper Lam oil well after flowing at a stabilised Adj. 1. stabilised - made stable or firm stabilized stable - resistant to change of position or condition; "a stable ladder"; "a stable peace"; "a stable relationship"; "stable prices" rate of 530 barrels of light (43 degree API (Application Programming Interface) A language and message format used by an application program to communicate with the operating system or some other control program such as a database management system (DBMS) or communications protocol. ) oil per day. The An Nagyah #9 well encountered a 20 meter meter, unit of measure meter, abbr. m, fundamental unit of length in the metric system. The meter was originally defined as 1/10,000,000 of the distance between the equator and either pole; however, the original survey was inaccurate and the meter was later oil bearing interval interval, in music, the difference in pitch between two tones. Intervals may be measured acoustically in terms of their vibration numbers. They are more generally named according to the number of steps they contain in the diatonic scale of the piano; e.g. in the Upper Lam sandstones. The An Nagyah #10 well was drilled to a total depth of 1,144 meters and was completed as an Upper Lam oil well, flowing at a stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. rate of 1,547 barrels of light (43 degree API) oil per day. The An Nagyah #10 well encountered a 33 meter oil bearing interval in the Upper Lam sandstones. The An Nagyah #11 well was drilled to a total depth of 1,394 meters and was completed as an Upper Lam oil well. The An Nagyah #11 well was tested from a 164 meter horizontal horizontal /hor·i·zon·tal/ (hor?i-zon´t'l) 1. parallel to the plane of the horizon. 2. occupying or confined to a single level in a hierarchy. horizontal parallel to the plane of the horizon. Upper Lam sandstone sandstone, sedimentary rock formed by the cementing together of grains of sand. The usual cementing material in sandstone is calcium carbonate, iron oxides, or silica, and the hardness of sandstone varies according to the character of the cementing material; quartz section at a stabilised rate of 3,100 barrels of light (43 degree API) oil per day and 1.72 million cubic feet of natural gas per day on a 56/64 inch choke (jargon) choke - To fail to process input or, more generally, to fail at any endeavor. E.g. "NULs make System V's "lpr(1)" choke." See barf, gag. at 365 psi PSI - Portable Scheme Interpreter flowing pressure. No water was produced during the test period. This is the first horizontal well drilled in the An Nagyah field and the first Lam formation horizontal well in the Republic of Yemen. The early production (trucking) facilities were installed at An Nagyah during the first quarter of 2004 with an initial capacity of 2,500 Bopd (625 Bopd to TransGlobe). Since commencing production in the second quarter of 2004, the trucking facilities have been steadily expanded to the current capacity of approximately 5,000 Bopd (1,250 Bopd to TransGlobe). With the addition of the horizontal well at An Nagyah #11, the current productive well capacity is approximately 8,000 Bopd which exceeds the capacity of the early production facilities. It is expected that the trucking facilities will be expanded to 6,000+ Bopd (1,500+ Bopd to TransGlobe) prior to the year end. The oil production is being trucked 18 miles to the Jannah Jannah (Arabic:جنّة; djannah, Turkish: Cennet) is the Islamic conception of paradise. The Arabic form Jannah is a shortened version meaning simply "Garden". Hunt facility where it enters the pipeline to the Ras Isa loading terminal on the Red Sea. Trucking operations will be phased out following the construction of a central production facility ("CPF (Control Program Facility) The IBM System/38 operating system that included an integrated relational DBMS. ") at An Nagyah and a 28 kilometer kilometer one thousand (103) meters; 3280.83 feet; five-eighths of a mile; abbreviated km. (18 mile) pipeline to the Jannah Hunt export pipeline. The pipeline and facilities are expected to be operational by mid 2005. The 10 inch pipeline is designed to allow an ultimate capacity of 80,000 Bopd so that future discoveries can be placed on stream quickly. The CPF is designed for an initial capacity of 10,000 to 12,000 Bopd (2,500 to 3,000 Bopd to TransGlobe), with expansion capabilities. The drilling rig is currently at the An Nagyah #12 well located between the An Nagyah #5 and #4 wells. The An Nagyah #12 well will also be drilled horizontally hor·i·zon·tal adj. 1. Of, relating to, or near the horizon. 2. a. Parallel to or in the plane of the horizon. b. At right angles to a vertical line. 3. with a planned horizontal section of 700 meters. Following An Nagyah #12, a well is planned to test a possible field extension on the southern edge of the An Nagyah field. This will be followed by an exploration well on a separate structure located nine kilometers southwest Southwest or south west is the ordinal direction halfway between south and west, the opposite of northeast. Southwest or south west may also refer to:
In addition to the current drilling activities, a workover rig will be mobilized in the fourth quarter to workover the An Nagyah #2 well and complete the Harmel harmel peganumharmala. #2 appraisal well. The An Nagyah #2 well was the discovery well for the Lam oil reservoir An oil reservoir, petroleum system or petroleum reservoir is often thought of as being an underground "lake" of oil, but it is actually composed of hydrocarbons contained in porous rock formations. and has been shut-in shut-in n. A person confined indoors by illness or disability. adj. 1. Confined to a home or hospital, as by illness. 2. Disposed to avoid social contact; excessively withdrawn or introverted. since testing was completed. Initial testing of An Nagyah #2 included tests in both the oil reservoir as well as the gas cap. The objective of the workover will be to seal off seal 1 n. 1. a. A die or signet having a raised or incised emblem used to stamp an impression on a receptive substance such as wax or lead. b. The impression so made. c. the gas cap perforations and complete the well as a producing oil well. After An Nagyah #2 operations are complete, the workover rig will be moved to the Harmel #2 appraisal well to begin the completion operations. Harmel #2 was drilled in June 2004 to appraise appraise v. to professionally evaluate the value of property including real estate, jewelry, antique furniture, securities, or in certain cases the loss of value (or cost of replacement) due to damage. the shallow This article or section may contain original research or unverified claims. Please help Wikipedia by adding references. See the for details. This article has been tagged since October 2007. Shallow means not very deep. oil reservoirs found in the discovery well, Harmel #1. The cores from Harmel #2 have been analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. , and current plans encompass stimulating stim·u·late v. stim·u·lat·ed, stim·u·lat·ing, stim·u·lates v.tr. 1. To rouse to activity or heightened action, as by spurring or goading; excite. See Synonyms at provoke. 2. the supra-salt reservoirs in the Harmel #2 well and placing both Harmel wells on production. Production and test data obtained from the #1 and #2 wells will help to determine the commerciality of the medium gravity Gravity The gravitational attraction at the surface of a planet or other celestial body. The quantity g is often referred to simply as “gravity’’ or “the force of gravity’’ of Earth, both of which are incorrect. oil (22 degree API) discovery at Harmel. The Harmel structure identified on 3-D seismic could require 80 to 90 shallow wells (700 to 800 meters in depth) to be fully developed. Block 72, Republic of Yemen (33% working interest) DNO ASA DNO ASA (OSE: DNO) originally Det norske oljeselskap is Norways fourth largest petroleum company with upstream operations in the North Sea, Middle East and Africa. The company has its headquarters in Oslo, Norway and is listed on the Oslo Stock Exchange. (operator at 34%), TG Holdings Yemen Inc. (33%) and Ansan Ansan is a city in Gyeonggi Province, South Korea. It lies south of Seoul, and is part of the Seoul National Capital Area. It is connected to Seoul by rail via Seoul Subway Line 4. Wikfs (Hadramaut Hadramaut: see Hadhramaut. ) Limited (33%)("Block 72 Joint Venture Group") were selected as the successful bidders for Block 72 in the Yemen International Bid Round for Exploration and Production of Hydrocarbons hydrocarbons (hīˈ·drō·kärˑ·b  nz),n. . TG Holdings Yemen Inc. is a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of TransGlobe Energy Corporation. The ratification The confirmation or adoption of an act that has already been performed. A principal can, for example, ratify something that has been done on his or her behalf by another individual who assumed the authority to act in the capacity of an agent. of the Block 72 Production Sharing Agreement Production sharing agreements (PSAs) are used primarily to determine the share a private company will receive of the natural resources (usually oil) extracted from a particular country. by the Yemen parliament is expected before the end of 2004. Block 72 encompasses 1,822 square kilometers (approximately 450,234 acres) and is located in the western Masila Basin BASIN Boulder Area Sustainability Information Network (Boulder, Colorado) BASIN Brothers And Sisters In Need adjacent to the billion barrel Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. Nexen
Nexen is an energy company based in Calgary, Alberta. Masila Block. The Block 72 Joint Venture Group plans to carry out a seismic acquisition program and the drilling of two exploration wells during the first exploration period of thirty months. It is anticipated that seismic will be acquired during 2005, with drilling commencing in late 2005 or early 2006. Nuqra Block 1, Arab Republic of Egypt Egypt (ē`jĭpt), Arab. Misr, biblical Mizraim, officially Arab Republic of Egypt, republic (2005 est. pop. 77,506,000), 386,659 sq mi (1,001,449 sq km), NE Africa and SW Asia. (50% working interest, Operator) As announced in the second quarter, TransGlobe Petroleum Egypt Inc. ("TransGlobe Egypt"), a wholly owned subsidiary of TransGlobe Energy Corporation, entered into a Farmout Agreement with Quadra A family of Macintosh computers that was popular in the early 1990s. See Macintosh.  Quadra 900 By this time, the hardware was fast enough to truly accommodate the sophisticated graphics-based software introduced years Egypt Limited ("QEL QEL Quality Evaluation Laboratory QEL Quotation Exchange Language "), a subsidiary of Quadra Resources Corp. headquartered in Calgary, and Rampex Petroleum International ("Rampex") headquartered in Cairo Cairo, city, Egypt Cairo (kī`rō), Arab. Al Qahirah, city (1996 pop. 6,789,479), capital of Egypt and the Cairo governorate, NE Egypt, a port on the Nile River near the head of its delta, at the boundary of ancient Upper and , Egypt. This agreement provides TransGlobe Egypt the opportunity to participate and earn a 50% working interest in the Nuqra Concession CONCESSION. A grant. This word is frequently used in this sense when applied to grants made by the French and Spanish governments in Louisiana. by paying 100% of the initial $6.0 million of expenditures in the Stage 1 and Stage 2 work programs. TransGlobe Egypt is the operator of the Nuqra Block. The Nuqra Concession is located in Upper Egypt near the city of Luxor Luxor (lŭk`sôr, l  k`–), city (1996 pop. 360,503), central Egypt, on the east bank of the Nile. It is 1 mi (1.6 km) SW of Karnak and occupies part of the site of Thebes. on the east bank of the Nile River Nile RiverArabic Bahr al-Nil River, eastern and northeastern Africa. The longest river in the world, it is about 4,132 mi (6,650 km) long from its remotest headstream (which flows into Lake Victoria) to the Mediterranean Sea. . The concession encompasses over two-thirds of the Kom Ombo Kom Ombo (كوم أمبو) (Coptic: Embo; Greek: Ὄμβοι Omboi, Ptol. iv. 5. § 73; Steph. B. s. v.; It. Anton. p. 165) or Ombos (Juv. xv. Basin, a rift basin analogous analogous /anal·o·gous/ (ah-nal´ah-gus) resembling or similar in some respects, as in function or appearance, but not in origin or development. a·nal·o·gous adj. to the Gulf of Suez Noun 1. Gulf of Suez - a northwestern arm of the Red Sea linked to the Mediterranean by the Suez Canal Red Sea - a long arm of the Indian Ocean between northeast Africa and Arabia; linked to the Mediterranean at the north end by the Suez Canal Basin, the Marib Marib (mä`rĭb), ancient city, Yemen, SW Arabia, 140 mi (225 km) inland at an altitude of 3,900 ft (1,190 m). It was one of the chief cities, perhaps the capital, of Sheba. It was the site of a dam, built in the 6th cent. B.C. Basin in the Republic of Yemen, and the Muglad Basin in Sudan Sudan (s  dăn`), officially Republic of Sudan, republic (2005 est. pop. 40,187,000), 967,494 sq mi (2,505,813 sq km), NE Africa. , all of which contain major reserves. The Nuqra
Concession contains more than 30,000 square kilometers or 7,500,000
acres of exploration lands with 13 seismically defined leads identified
from over 4,000 km of existing 2-D seismic. Seismic and well data have
confirmed the existence of Jurassic and Cretaceous Cre·ta·ceous adj. 1. Of or belonging to the geologic time, system of rocks, and sedimentary deposits of the third and last period of the Mesozoic Era, characterized by the development of flowering plants and ending with the sudden extinction sediments and the presence of a petroleum system which could potentially hold significant oil reserves Oil reserves refer to portions of oil in place that are claimed to be recoverable under economic constraints. Oil in the ground is not a "reserve" unless it is claimed to be economically recoverable, since as the oil is extracted, the cost of recovery increases incrementally . Mr. Mitchell Mitchell, city (1990 pop. 13,798), seat of Davison co., SE S.Dak.; inc. 1881. Mitchell is a trade, distribution, and shipping center for a dairy and livestock area. Wren wren, small, plump perching songbird of the family Troglodytidae. There are about 60 wren species, and all except one are restricted to the New World. The plumage is usually brown or reddish above and white, gray, or buff, often streaked, below. has joined the Company as General Manager of TransGlobe Petroleum Egypt Inc. in Cairo and is currently establishing the Cairo office. The proposed work program for the balance of 2004 and 2005 will consist of geological ge·ol·o·gy n. pl. ge·ol·o·gies 1. The scientific study of the origin, history, and structure of the earth. 2. The structure of a specific region of the earth's crust. 3. A book on geology. field studies, re-processing of existing 2-D seismic and field acquisition of additional 2-D seismic data. It is anticipated that exploration drilling will commence after 2005. Canada To date, the Company has drilled 15 wells (11.2 net wells) in 2004 resulting in 12 gas wells, 2 oil wells and 1 dry hole for an overall success rate of 93%. It is anticipated that Canadian production will increase to approximately 1,250 to 1,500 Boepd early in 2005 when the remainder of the 2004 wells are completed and pipeline connected. Production in the third quarter averaged 846 Boepd representing a 74% increase over the second quarter 2004 production. Production was partially curtailed by approximately 140 Boepd during the quarter due to natural gas compression compression, external stress applied to an object or substance, tending to cause a decrease in volume (see pressure). Gases can be compressed easily, solids and liquids to a very small degree if at all. capacity limitations at third party operated facilities in the Nevis and Twining areas. It is anticipated that additional compression will be installed by early 2005. The majority of the Company's Canadian 2005 drilling program is expected to commence in June 2005 after spring breakup breakup The division of a company into separate parts. The most famous breakup to date was the 1984 division of AT&T (formerly, American Telephone & Telegraph Company). This breakup was intended to increase competition in the communications industry. . It is expected that drilling equipment and services will be available at better prices during the summer months. Traditionally, the winter months (December December: see month. through April) are the busiest and most expensive time to conduct drilling operations in Canada. The Company plans to drill 10 to 15 wells in Canada during 2005. All the prospects are focused towards natural gas in Central Alberta Central Alberta (also named Alberta's Heartland) is a region located in the Canadian province of Alberta. Central Alberta is the most densely populated rural area in the province. Agriculture and energy make up an important part of the economy. . Successful wells could be on production quickly as these prospects are near existing infrastructure and can generally be accessed year round. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial Management's discussion and analysis ("MD&A") should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the unaudited interim financial statements for the three and nine months ended September 30, 2004 and 2003, the audited financial statements and MD&A for the year ended December 31, 2003 included in the Company's annual report. Additional information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the Company, including the Company's Annual Information Form, is on SEDAR SEDAR System for Electronic Document Analysis and Retrieval SEDAR Southeast Data, Assessment, and Review at www.sedar.com. All dollar values are expressed in U.S. dollars, unless otherwise stated. The calculations of barrels of oil equivalent ("Boe") are based on a conversion rate of six thousand cubic feet of natural gas to one barrel of crude oil. This Management's Discussion and Analysis (MD&A) may include certain statements that may be deemed to be "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. All statements in this interim report, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation Exploitation See also Opportunism. Barnum, P. T. (1810–1891) circus impressario famous for his saying, “Never give a sucker an even break.” [Am. Hist. activities and events or developments that the Company expects, are forward-looking statements. Although TransGlobe believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, oil and gas prices, exploitation and exploration successes, continued availability of capital and financing, and general economic, market or business conditions. SELECTED QUARTERLY FINANCIAL INFORMATION (US$000's, except Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 per share amounts) 2004 2004 2004 2003 2003 --------------------------------------------------------------------- Oil and gas sales, net of royalties 8,227 5,779 5,868 4,488 4,159 Cash flow from operations 4,363 2,749 3,887 1,894 2,193 Cash flow from operations per share - Basic and diluted 0.08 0.05 0.07 0.04 0.04 Net income 2,541 447 2,163 3,414 291 Net income per share - Basic 0.05 0.01 0.04 0.06 0.01 - Diluted 0.04 0.01 0.04 0.06 0.01 Total assets 44,478 38,798 35,753 35,601 29,212 --------------------------------------------------------------------- --------------------------------------------------------------------- Cash flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital. We consider this a key measure as it demonstrates our ability to generate the cash flow necessary to fund future growth through capital investment. Cash flow from operations may not be comparable to similar measures used by other companies. Cash flow from operations increased by $1,614,000 (59%) in Q3 compared to Q2-2004 mainly as a result of increased volumes from drilling success and increased commodity prices. Net income increased by $2,094,000 (468%) in Q3 compared to Q2-2004 mainly as a result of the above and the recognition of a future income tax recovery in Canada. RESULTS OF OPERATIONS Net income for the three months ended September 30, 2004 was $2,541,000 ($0.05 per basic share and $0.04 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share) compared to a net income of $291,000 ($0.01 per share, basic and diluted) in the comparable period 2003. Cash flow from operations for the three months ended September 30, 2004 was $4,363,000 ($0.08 per share, basic and diluted) compared to $2,193,000 ($0.04 per share, basic and diluted) in the comparable period in 2003. Net income increased 773% and cash flow from operations increased 99% in the three months ended September 30, 2004 compared to the same period in 2003. The following is a brief summary of the primary changes that occurred during Q3-2004 that will be discussed in more detail throughout this MD&A: - Sales volumes increased 45% in the three months ended September 30, 2004 compared to the same period 2003. - Commodity prices increased 31% in the three months ended September 30, 2004 compared to the same period 2003. - Future income tax recovery amounted to $1,160,000 in the three months ended September 30, 2004 without a corresponding amount in the same period in 2003. - Stock compensation expense amounted to $381,000 in the three months ended September 30, 2004 without a corresponding amount in the same period in 2003.
OPERATING RESULTS
Daily Sales Volumes, Working Interest Before Royalties
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
2004 2003 2004 2003
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Yemen - Oil Bopd 3,072 2,456 2,661 2,348
Canada - Oil and liquids Bopd 202 58 157 52
- Gas Mcfpd 3,865 1,105 2,666 1,030
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Barrels of oil equivalent (6 : 1) Boepd 3,918 2,698 3,263 2,572
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The Company has set an average production target of 3,600 Boed for 2004 representing a 37% increase over 2003. Consolidated Net Operating Results Net operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. is a non-GAAP measure. Management believes that net operating income is a useful supplemental measure to analyse an·a·lyse v. Chiefly British Variant of analyze. analyse or US -lyze Verb [-lysing, -lysed] or -lyzing, operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Net operating income may not be comparable to similar measures used by other companies.
Consolidated
--------------------------------------
Nine Months Ended Nine Months Ended
------------------ ------------------
September 30, 2004 September 30, 2003
($000's, except ------------------ ------------------
per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil and gas sales 30,948 34.62 19,840 28.25
Royalties 11,074 12.39 7,167 10.21
Operating expenses 4,251 4.75 2,585 3.68
---------------------------------------------------------------------
Net operating income(x) 15,623 17.48 10,088 14.36
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated
--------------------------------------
Three Months Ended Three Months Ended
------------------ ------------------
September 30, 2004 September 30, 2003
($000's, except ------------------ ------------------
per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil and gas sales 13,380 37.12 7,021 28.29
Royalties 5,153 14.30 2,862 11.53
Operating expenses 1,772 4.91 828 3.34
---------------------------------------------------------------------
Net operating income(x) 6,455 17.91 3,331 13.42
---------------------------------------------------------------------
(x) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with the Ministry
of Oil and Minerals ("MOM") in the Republic of Yemen (Q3-2004 -
$1,560,000, $4.33/Boe; Q3-2003, - $929,000, $3.74/Boe), (Q1, Q2
and Q3-2004 - $3,328,000, $3.72/Boe; Q1, Q2 and Q3-2003 -
$1,796,000, $2.56/Boe).
Segmented Net Operating Results
In 2004 the Company operated in two geographic areas, segmented
as the Republic of Yemen and Canada. MD&A will follow under each
of these segments.
Republic of Yemen
Nine Months Ended Nine Months Ended
------------------ ------------------
September 30, 2004 September 30, 2003
($000's, except ------------------ ------------------
per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 25,810 35.40 17,844 27.84
Royalties 10,202 13.99 6,875 10.73
Operating expenses 3,269 4.48 2,143 3.34
---------------------------------------------------------------------
Net operating income(x) 12,339 16.93 8,826 13.77
---------------------------------------------------------------------
Three Months Ended Three Months Ended
------------------ ------------------
September 30, 2004 September 30, 2003
($000's, except ------------------ ------------------
per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 10,943 38.72 6,336 28.05
Royalties 4,743 16.79 2,776 12.29
Operating expenses 1,354 4.79 663 2.94
---------------------------------------------------------------------
Net operating income(x) 4,846 17.14 2,897 12.82
---------------------------------------------------------------------
(x) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with the Ministry
of Oil and Minerals ("MOM") in the Republic of Yemen (Q3-2004 -
$1,560,000, $4.33/Boe; Q3-2003, - $929,000, $3.74/Boe), (Q1, Q2
and Q3-2004 - $3,328,000, $3.72/Boe; Q1, Q2 and Q3-2003 -
$1,796,000, $2.56/Boe).
Net operating income in Yemen increased 40% in the nine months and 67% in the three months ended September 30, 2004 compared to the same periods of 2003 primarily as a result of the following: - Sales volumes increased 13% for the nine months and 25% for the three months ended September 30 compared to the same periods of 2003 primarily as a result of Block S-1 production commencing at the end of the first quarter 2004. During the third quarter sales volumes for Block S-1 and Block 32 were 522 Bopd and 2,550 Bopd, respectively. Production volumes for Block S-1 were higher than sales volumes, averaging 907 Bopd during the second quarter. The difference is carried in oil inventory of 61,790 barrels (38,571 barrels after the Yemen government's production sharing oil). - Oil prices increased 27% for the nine months and 38% for the three months ended September 30 compared to the same periods of 2003. - Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. on a Boe basis increased 34% for the nine months and 63% for the three months ended September 30 compared to the same periods of 2003, mainly as a result of the increased export pipeline tariff tariff, tax on imported and, more rarely, exported goods. It is also called a customs duty. Tariffs may be distinguished from other taxes in that their predominant purpose is not financial but economic—not to increase a nation's revenue but to protect domestic on Block 32 for all of 2004 and only part of 2003 following recovery of all historical costs in 2003. Block 32 operating expenses averaged $4.36 per barrel during the third quarter compared to $2.94 per barrel during the third quarter 2003. Also, Block S-1 has significantly higher operating costs operating costs npl → gastos mpl operacionales during the initial trucking phase averaging $7.75 per barrel. This is a reflection of higher costs associated with trucking and higher fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). per Boe until volumes are increased when full scale production commences in 2005. The Block 32 Production Sharing agreement allows for the recovery of operating costs and capital costs from oil production. Operating costs are recovered in the quarter expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. . The capital costs are amortized over two years with 50% recovered in the quarter expended and the remaining 50% recovered in the first quarter of the following calendar year. The Company will receive a larger share of production in the first quarter of each year as 50% of the previous year's historical costs are recovered. The amount of oil required to recover capital and operating costs will vary depending upon the prevailing oil prices. The Company received 38% of its working interest share of production (after royalty Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced. and tax) in the third quarter of 2004 compared to 65% in the first quarter of 2004. The Company expects to receive between 36% to 41% of its working interest share of production in the balance of the year depending upon production volumes, oil prices, operating costs and eligible capital expenditures. The Block S-1 Production Sharing agreement allows for the recovery of operating costs and capital costs from oil production. Operating costs are recovered in the quarter expended. New capital costs are amortized over eight quarters with one eighth (12.5%) recovered each quarter. In addition to current ongoing investments, the Company will also recover eligible historical costs on a "last in, first out" basis. It is expected that the Company will receive maximum cost oil for the balance of 2004 and all of 2005. The amount of oil required to recover capital and operating costs will vary depending upon the prevailing oil prices, operating costs and the amount of new capital invested. It is expected that the Company will continue to receive 62.5% of its working interest share of production (net barrels, after royalty and tax) for the balance of 2004 and the year 2005.
Canada
Nine Months Ended Nine Months Ended
------------------ ------------------
September 30, 2004 September 30, 2003
($000's, except ------------------ ------------------
per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 757 36.54 244 26.97
Gas sales (6 : 1) 3,690 30.30 1,537 32.82
NGL sales 647 28.98 125 23.52
Other sales 44 - 90 -
---------------------------------------------------------------------
5,138 31.17 1,996 32.61
Royalties 872 5.29 292 4.77
Operating expense 982 5.96 442 7.23
---------------------------------------------------------------------
Net operating income 3,284 19.92 1,262 20.61
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Three Months Ended
---------------------------------------------------------------------
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
---------------------------------------------------------------------
Oil sales 364 39.50 86 26.10
Gas sales (6 : 1) 1,747 29.52 532 31.44
NGL sales 309 32.90 46 22.50
Other sales 17 - 21 -
---------------------------------------------------------------------
2,437 31.31 685 30.76
Royalties 410 5.27 86 3.86
Operating expense 418 5.37 165 7.41
---------------------------------------------------------------------
Net operating income 1,609 20.67 434 19.49
---------------------------------------------------------------------
---------------------------------------------------------------------
Net operating income in Canada increased 271% in the three months
ended September 30, 2004 compared to the same period of 2003
primarily as a result of the following:
- Sales volumes increased 249% as a direct result of the 2003 and
2004 drilling programs.
- Commodity prices increased 2% on a Boe basis.
- Operating costs decreased 28% on a Boe basis as a result of wells
drilled in 2003 and 2004 that were placed on production since Q3
2003, which have a lower operating cost than the previous wells
on production.
GENERAL AND ADMINISTRATIVE EXPENSES (G&A)
Nine Months Ended Nine Months Ended
---------------------------------------------------------------------
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
($000's, except Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
---------------------------------------------------------------------
G&A (gross) 2,490 2.79 1,167 1.66
Capitalized G&A (533) (0.60) (347) (0.49)
Overhead recoveries (115) (0.13) (37) (0.05)
---------------------------------------------------------------------
G&A (net) 1,842 2.06 783 1.12
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Three Months Ended
---------------------------------------------------------------------
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
($000's, except Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
---------------------------------------------------------------------
G&A (gross) 839 2.33 329 1.33
Capitalized G&A (168) (0.47) (133) (0.54)
Overhead recoveries (66) (0.18) (28) (0.11)
---------------------------------------------------------------------
G&A (net) 605 1.68 168 0.68
---------------------------------------------------------------------
---------------------------------------------------------------------
General and administrative expenses increased 135% in the nine months and 260% in the three months ended September 30, 2004 compared to the same periods of 2003. On a Boe basis, general and administrative expenses increased 84% in the nine months and 147% in the three months ended September 30, 2004 compared to the same periods of 2003 as a result of: - Effective January January: see month. 1, 2004 the Company adopted the new accounting standard of Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. ("CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ") section 3870, "Stock-based Compensation and Other Stock-based Payments", retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin without restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of prior periods. This Canadian accounting standard requires the Company to record a compensation expense over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period based on the fair value of options granted to employees and directors since January 1, 2002. Stock compensation expense is included in general and administrative expenses. Non-cash stock compensation expense amounted to $859,000 ($0.96/Boe) for the nine months and $381,000 ($1.06/Boe) for the three months ended September 30, 2004. Based on stock option grants subsequent to January 1, 2002, it is expected that the effect of the compensation expense on 2004 earnings will be approximately $1.2 million with no effect on cash flow from operations.
DEPLETION, DEPRECIATION AND ACCRETION EXPENSE (DD&A)
Nine Months Ended Nine Months Ended
---------------------------------------------------------------------
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
($000's, except Per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
---------------------------------------------------------------------
Republic of Yemen 4,771 6.54 4,491 7.01
Canada 1,378 8.36 470 7.68
---------------------------------------------------------------------
6,149 6.88 4,961 7.06
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended Three Months Ended
---------------------------------------------------------------------
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
---------------------------------------------------------------------
Republic of Yemen 2,099 7.43 1,691 7.49
Canada 502 6.45 211 9.48
---------------------------------------------------------------------
2,601 7.22 1,902 7.66
---------------------------------------------------------------------
---------------------------------------------------------------------
In Yemen, unproven unproven Dubious, nonscientific, not proven, quack, questionable, unscientific adjective Relating to that which has not been validated by reproducible experiments or other scientific methods for determining effect or efficacy properties in the amount of $5.5 million were excluded from costs subject to depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and depreciation. This represents a portion of the costs incurred in Block S-1. These costs will be included in the depletable de·plete tr.v. de·plet·ed, de·plet·ing, de·pletes To decrease the fullness of; use up or empty out. [Latin d base as Block S-1 is developed or as impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. is determined. In Yemen, DD&A on a Boe basis decreased 7% in the nine months and 1% in the three months ended September 30, 2004 compared to the same period of 2003 primarily as a result of an increase in Yemen proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. that lowered the depletion rate in 2004. In Canada, DD&A on a Boe basis decreased 32% in the three months ended September 30, 2004 compared to the same period of 2003 primarily as a result of an increase in Canadian proven reserves that lowered the depletion rate for the three months ended September 30, 2004. DD&A on a Boe basis increased 9% in the nine months ended September 30, 2004 compared to the same period of 2003 primarily as a result of an increase in Canadian production which increased the depletion rate for the nine months ended September 30, 2004. INCOME TAXES Current income tax expense in Q3-2004 of $1,576,000 represents income taxes of $1,560,000 (Q3-2003 - $929,000) incurred and paid under the laws of the Republic of Yemen pursuant to the PSA (Professional Services Automation) An information system designed to organize, track and manage all opportunities, work, resources, costs, revenues and invoices to improve the productivity and efficiency of the workforce. on Block 32 and Block S-1 and $16,000 paid in Canada. The increase in Yemen is primarily the result of the following: - Increased volumes mainly as a result of production start up on Block S-1. - Increase in oil prices. - An increase in the Yemen government's share of production sharing oil on Block 32 as a result of recovery of all historical costs during Q2-2003. The Yemen government's share of production sharing oil includes royalties Not to be confused with Royal family. Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right. and taxes. In Q3-2004, the Company recognized $1,535,000 of the $1,687,000 (adjusted for foreign exchange) unrecognized future tax benefits in Canada outstanding at June 30, 2004 as a direct result of the successful Canadian drilling program carried out in 2004 and increased commodity prices. The Company has unrecognized future tax benefits in Canada in the amount of $152,000 which may be recognized in the future with continued drilling successes in Canada.
CAPITAL EXPENDITURES/DISPOSITIONS
Capital Expenditures
Three Months Nine Months
Ended Sept. 30 Ended Sept. 30
---------------------------------------------------------------------
($000's) 2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Republic of Yemen 3,175 1,812 7,376 7,303
Canada 3,757 1,633 7,207 2,916
Arab Republic of Egypt 709 - 709 -
---------------------------------------------------------------------
Total capital expenditures 7,641 3,445 15,292 10,219
---------------------------------------------------------------------
---------------------------------------------------------------------
Capital expenditures in 2004 are mainly comprised of the following: Block 32, Yemen ($2,189,000) - 3-D seismic program at Tasour, Tasour facility upgrades, drilling two wells at Tasour. Block S-1, Yemen ($5,153,000) - Drilling and completing of seven wells at An Nagyah, drilling one well at Harmel, drilling one well at Al Hareth and costs associated with commercial development of An Nagyah. Other, Yemen ($34,000) - Mainly costs associated with obtaining Block 72 in Yemen. Nuqra Block 1, Egypt ($709,000) - Costs associated with acquiring the Block. Canada ($7,207,000) - Costs mainly related to the drilling of twelve wells, tie-in tie-in n. One thing that is related to or connected with another. Noun 1. tie-in - a fastener that serves to join or connect; "the walls are held together with metal links placed in the wet mortar during construction" of four of these wells plus the tie-in of two wells drilled in prior years as part of the 2004 exploration and development program. - Other costs related to oil and gas lease acquisitions for future drilling associated with the 2004 and 2005 exploration and development programs. OUTSTANDING SHARE DATA Common shares issued and outstanding as at September 30, 2004 are 54,096,439. LIQUIDITY AND CAPITAL RESOURCES Funding for the Company's capital expenditures in the third quarter of 2004 was provided by cash flow from operations and working capital. At September 30, 2004 the Company had a working capital deficiency A shortage or insufficiency. The amount by which federal Income Tax due exceeds the amount reported by the taxpayer on his or her return; also, the amount owed by a taxpayer who has not filed a return. of $1,203,000, zero debt and a revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility of $3,963,000, an acquisition/development credit facility of $1,585,000 and a letter of credit facility of $2,000,000. The Company expects to fund the balance of its 2004 exploration and development program (remaining budget of $11 million firm and contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the ) through the use of working capital, cash flow, debt and possible equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. . The use of our credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities during 2004 and 2005 is expected to remain within conservative guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. of a debt to cash flow ratio of less than 1:1. The Company is currently negotiating a new increased revolving credit facility which is expected to be finalized See finalization. in November November: see month. 2004. COMMITMENTS AND CONTINGENCIES Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. As part of its normal business, the Company entered into arrangements and incurred obligations that will impact the Company's future operations and liquidity. The principal commitments of the Company are as follows: Three Months Twelve Months --------------------------------------------------------------------- ($000's) 2004 2005 2006 2007 --------------------------------------------------------------------- --------------------------------------------------------------------- Office and equipment leases $ 39 $ 146 $ 147 $ 49 --------------------------------------------------------------------- --------------------------------------------------------------------- In June 2004, the Company entered into a one year fixed price contract to sell 10,000 barrels of oil per month in Block 32 commencing July July: see month. 1, 2004 at $33.90 per barrel for Dated Brent Brent, outer borough (1991 pop. 226,100) of Greater London, SE England. The area is a rail and industrial center. Its manufactures include automobile parts, clocks and watches, and electrical equipment. plus or minus the Yemen Government's official selling price differential. In February February: see month. 2004, the Company entered into a contract to sell 1,500 gigajoules (GJ) per day (approximately 1,500 Mcfpd) of natural gas in Canada from April 1 to October 31, 2004 for Cdn$5.795/GJ which is now expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. . In December 2003, the Company issued flow through shares with terms providing that the Company renounce TO RENOUNCE. To give up a right; for example, an executor may renounce the right of administering the estate of the testator; a widow the right to administer to her intestate husband's estate. 2. Canadian tax deductions Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. in the amount of Cdn$3,000,000 to subscribers with the entire amount to be expended by the Company by December 31, 2004. As at September 30, 2004 the Company has fulfilled ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. this expenditure commitment. Pursuant to the Company's farm-in agreement on the Nuqra Concession in Egypt, the Company is committed to spend $6 million over the next 5 years to earn its 50% working interest. As part of this commitment the Company issued a $2 million letter of credit on July 8, 2004 to Ganoub El Wadi Holding Petroleum Company which expires on February 14, 2007. This letter of credit is secured by a guarantee granted by Export Development Canada Export Development Canada (EDC) is Canada's export credit agency and a Crown corporation that provides financing and risk management services to Canadian exporters and investors in up to 200 markets worldwide. .
Consolidated Statements Of Income and Deficit
(Unaudited - Expressed in thousands of U.S. Dollars)
Three Months Nine Months
Ended September 30 Ended September 30
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
(Restated (Restated
Notes 2 and 3) Notes 2 and 3)
REVENUE
Oil and gas sales
net of royalties $ 8,227 $ 4,159 $ 19,874 $ 12,673
Other income 6 4 9 10
---------------------------------------------------------------------
8,233 4,163 19,883 12,683
---------------------------------------------------------------------
EXPENSES
Operating 1,772 828 4,251 2,585
General and administrative 605 168 1,842 783
Foreign exchange (gain) loss 277 45 274 66
Interest 21 - 21 -
Depletion, depreciation
and accretion 2,601 1,902 6,149 4,961
---------------------------------------------------------------------
5,276 2,943 12,537 8,395
---------------------------------------------------------------------
Net income before
income taxes 2,957 1,220 7,346 4,288
Income taxes
Current 1,576 929 3,355 1,796
Future (1,160) - (1,160) -
---------------------------------------------------------------------
NET INCOME 2,541 291 5,151 2,492
---------------------------------------------------------------------
Deficit, beginning of period (3,994) (10,025) (6,393) (12,298)
Retroactive application of
changes in accounting
policies (Notes 2 and 3) - - (211) 72
---------------------------------------------------------------------
Deficit, beginning of period,
as restated (3,994) (10,025) (6,604) (12,226)
---------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (1,453) $ (9,734) $ (1,453) $ (9,734)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income per share:
(Note 5)
Basic $ 0.05 $ 0.01 $ 0.10 $ 0.05
Diluted $ 0.04 $ 0.01 $ 0.09 $ 0.05
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited - Expressed in thousands of U.S. Dollars)
September 30, December 31,
2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
(Restated
Notes 2 and 3)
ASSETS
Current
Cash and cash equivalents $ 1,455 $ 4,452
Accounts receivable 3,282 2,383
Oil inventory 943 -
Prepaid expenses 108 161
---------------------------------------------------------------------
5,788 6,996
---------------------------------------------------------------------
Property and equipment
Republic of Yemen 20,703 18,563
Canada 14,546 8,470
Arab Republic of Egypt 709 -
---------------------------------------------------------------------
35,958 27,033
Future income tax asset 2,732 1,572
---------------------------------------------------------------------
$ 44,478 $ 35,601
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES
Current
Accounts payable and accrued liabilities $ 6,991 $ 4,459
Asset retirement obligations (Note 3) 715 467
---------------------------------------------------------------------
7,706 4,926
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 4) 37,083 36,996
Contributed surplus (Note 2) 1,142 -
Deficit (Notes 2 and 3) (1,453) (6,321)
---------------------------------------------------------------------
36,772 30,675
---------------------------------------------------------------------
$ 44,478 $ 35,601
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated Statements Of Cash Flows
(Unaudited - Expressed in thousands of U.S. Dollars )
Three Months Nine Months
Ended September 30 Ended September 30
2004 2003 2004 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
CASH FLOWS RELATED TO THE (Restated Notes (Restated Notes
FOLLOWING ACTIVITIES: 2 and 3) 2 and 3)
OPERATING
Net income $ 2,541 $ 291 $ 5,151 $ 2,492
Adjustments for
Depletion, depreciation
and accretion 2,601 1,902 6,149 4,961
Future income taxes (1,160) - (1,160) -
Stock-based compensation
(Note 2) 381 - 859 -
---------------------------------------------------------------------
Cash flow from operations 4,363 2,193 10,999 7,453
Change in non-cash
working capital (632) 502 (2,208) 2,582
---------------------------------------------------------------------
3,731 2,695 8,791 10,035
---------------------------------------------------------------------
FINANCING
Issue of Common shares - - 87 196
Repurchase of Common shares - - - (41)
Change in non-cash
working capital 10 - 10 -
---------------------------------------------------------------------
10 - 97 155
---------------------------------------------------------------------
INVESTING
Exploration and development
expenditures
Republic of Yemen (3,175) (1,812) (7,376) (7,303)
Canada (3,757) (1,633) (7,207) (2,916)
Arab Republic of Egypt (709) - (709) -
Changes in non-cash
working capital 1,981 1,139 3,407 1,366
---------------------------------------------------------------------
(5,660) (2,306) (11,885) (8,853)
---------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,919) 389 (2,997) 1,337
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,374 3,543 4,452 2,595
---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,455 $ 3,932 $ 1,455 $ 3,932
---------------------------------------------------------------------
---------------------------------------------------------------------
Supplemental Disclosure:
Cash interest paid $ 21 $ - $ 21 $ -
Cash taxes paid $ 1,576 $ 929 $ 3,355 $ 1,796
---------------------------------------------------------------------
---------------------------------------------------------------------
Notes To The Consolidated Financial Statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge (Unaudited) 1. Basis of presentation The interim consolidated financial statements of TransGlobe Energy Corporation ("TransGlobe" or the "Company") for the three and the nine month periods ended September 30, 2004 and 2003 have been prepared by management in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with accounting principles generally accepted in Canada on the same basis as the audited consolidated financial statements as at and for the year ended December 31, 2003, except as outlined in Note 2. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. in TransGlobe's annual report for the year ended December 31, 2003. 2. Changes in accounting policies (a) Asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. Effective January 1, 2004 the Company retroactively adopted the Canadian Institute of Chartered Accountants ("CICA") section 3110, "Asset Retirement Obligations". The new recommendations require the recognition of the fair value of obligations associated with the retirement of tangible Possessing a physical form that can be touched or felt. Tangible refers to that which can be seen, weighed, measured, or apprehended by the senses. A tangible object is something that is real and substantial. An automobile is an example of tangible Personal Property. long-lived long-lived adj. 1. Having a long life: a long-lived aunt. 2. Lasting a long time; persistent: a long-lived rumor. 3. assets be recorded in the period the asset is put into use, with a corresponding increase to the carrying amount of the related asset. The obligations recognized are statutory, contractual or legal obligations. The liability is accreted over time for changes in the fair value of the liability through charges to accretion expense In accounting, accretion expense is the expense created when updating the present value(PV) of a financial instrument. For example, if one originally recognizes the present value of a liability at $650, which has a future value (FV) of $1000, every year one must increase the which is included in depletion, depreciation and accretion expense. The costs capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. to the related assets are amortized to earnings in a manner consistent with the depletion and depreciation of the underlying asset. Note 3 discloses the impact of the adoption of CICA section 3110 on the financial statements. (b) Stock-based compensation Effective January 1, 2004 the Company adopted the new accounting standard of CICA section 3870, "Stock-based Compensation and Other Stock-based Payments", retroactively without restatement of prior periods. This Canadian accounting standard requires the Company to record a compensation expense over the vesting period based on the fair value of options granted to employees and directors since January 1, 2002. Stock compensation expense is included in general and administrative expenses. This change resulted in an increase to opening deficit of $283,000, an increase to opening contributed surplus of $283,000 and an expense of $859,000 for the nine months and $381,000 for the three months ended September 30, 2004. (c) Property and equipment - oil and gas Effective January 1, 2004 the Company adopted Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. 16, "Oil and Gas Accounting - Full Cost" ("AcG-16"), which replaces Accounting Guideline 5, "Full Cost Accounting in the Oil and Gas Industry". AcG-16 modifies how the ceiling test is performed and is consistent with CICA section 3063, "Impairment of Long-lived Assets". The recoverability of a cost centre is tested by comparing the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of the cost centre to the sum of the undiscounted cash flows expected from the cost centre's use and eventual disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of . If the carrying value is unrecoverable the cost centre is written down to its fair value. This approach incorporates risks and uncertainties in the expected future cash flows Expected future cash flows Projected future cash flows associated with an asset. which are discounted using a risk free rate. The adoption of AcG-16 had no effect on the Company's financial results. (d) Impairment of long-lived assets Effective January 1, 2004 the Company adopted CICA section 3063, "Impairment of Long-lived Assets", which had no effect on the consolidated financial statements. 3. Asset retirement obligations The Company retroactively adopted the new recommendations on the recognition of the obligations to retire retire v. 1) to stop working at one's occupation. 2) to pay off a promissory note, and thus "retire" the loan. 3) for a jury to go into the jury room to decide on a verdict after all evidence, argument and jury instructions have been completed. long-lived tangible assets Tangible Asset An asset that has a physical form such as machinery, buildings and land. Notes: This is the opposite of an intangible asset such as a patent or trademark. Whether an asset is tangible or intangible isn't inherently good or bad. . The change was effective January 1, 2004 and the new accounting policy was applied retroactively. The impact was as follows:
Consolidated Balance Sheet - as at December 31, 2003
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(000's) As Reported Change As Restated
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Assets
Net property and equipment $ 26,646 $ 387 $ 27,033
Liabilities and shareholders' equity
Asset retirement obligations - 467 467
Provision for site restoration
and abandonment 153 (153) -
Deficit (6,393) 72 (6,321)
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Consolidated Statement of Income and Deficit
Nine Months Ended September 30, 2003
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(000's) As Reported Change As Restated
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Depletion, depreciation
and accretion $ 4,961 $ - $ 4,961
Net income 2,492 - 2,492
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Three Months Ended September 30, 2003
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(000's) As Reported Change As Restated
---------------------------------------------------------------------
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Depletion, depreciation
and accretion $ 1,902 $ - $ 1,902
Net income 291 - 291
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At September 30, 2004, the estimated total undiscounted amount
required to settle the asset retirement obligations was $1,069,000.
These obligations will be settled at the end of the useful lives of
the underlying assets, which currently extend up to 10 years into the
future. This amount has been discounted using a credit-adjusted
risk-free interest rate of 6.5%.
Changes to asset retirement obligations were as follows:
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Nine months
ended Sept. 30,
(000's) 2004
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Asset retirement obligations, December 31, 2003 $ 467
Liabilities incurred during period 223
Liabilities settled during period -
Accretion 25
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Asset retirement obligations, September 30, 2004 715
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4. Share capital
The Company is authorized to issue an unlimited number of common
shares with no par value.
Continuity of common shares
(000's) 2004
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Shares Amount
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Balance, December 31, 2003 53,743 $ 36,996
Stock options exercised 353 87
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Balance, September 30, 2004 54,096 $ 37,083
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Continuity of stock options
Weighted
Average
(000's, except per share amounts) Number of Exercise Price
Options Per Share
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Balance, December 31, 2003 2,759 $ 0.36
Granted 1,100 2.48
Exercised (353) 0.24
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Balance, September 30, 2004 3,506 $ 1.04
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Stock-based compensation
The fair values of all stock options granted are estimated on the
date of grant using the Black-Scholes option-pricing model. No stock
options were granted during the three months ended September 30,
2004. The weighted average fair market value of stock options
granted during the nine months ended September 30, 2004 and the
assumptions used in their determination are as noted below:
Nine months
Ended
Sept. 30, 2004
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---------------------------------------------------------------------
Weighted average fair market value per option $ 1.36
Risk-free interest rate (percent) 5.30
Expected life (years) 4.00
Volatility (percent) 66.64
Expected annual dividend per share -
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5. Per share amounts
The weighted average number of common shares and diluted common
shares outstanding during the nine months ended September 30, 2004
was 54,081,000 (2003 - 51,949,000) and 56,376,000
(2003 - 53,091,000), respectively and during the three months ended
September 30, 2004 was 54,096,000 (2003 - 52,285,000) and 56,392,000
(2003 - 53,686,000), respectively.
6. Segmented information
Three Months Nine Months
Ended September 30 Ended September 30
(000's) 2004 2003 2004 2003
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(Restated (Restated
Notes 2 and 3) Notes 2 and 3)
Oil and gas sales, net
of royalties
Republic of Yemen $ 6,200 $ 3,560 $ 15,608 $ 10,969
Canada 2,027 599 4,266 1,704
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8,227 4,159 19,874 12,673
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Operating expenses
Republic of Yemen 1,354 663 3,269 2,143
Canada 418 165 982 442
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1,772 828 4,251 2,585
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Depletion, depreciation
and accretion
Republic of Yemen 2,099 1,691 4,771 4,491
Canada 502 211 1,378 470
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2,601 1,902 6,149 4,961
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Segmented operations 3,854 1,429 9,474 5,127
Other income 6 4 9 10
General and administrative 605 168 1,842 783
Interest 21 - 21 -
Foreign exchange (gain) loss 277 45 274 66
Income taxes 416 929 2,195 1,796
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Net income $ 2,541 $ 291 $ 5,151 $ 2,492
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7. Commitments In June 2004, the Company entered into a one year fixed price contract to sell 10,000 barrels of oil per month in Block 32 commencing July 1, 2004 at $33.90 per barrel for Dated Brent plus or minus the Yemen Government's official selling price differential. The above includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements in this release, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although TransGlobe believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include oil and gas prices, exploitation and exploration successes, continued availability of capital and financing, and general economic, market or business conditions. s/s/ Ross Clarkson Ross G. Clarkson President & C.E.O. |
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