TransGlobe Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Call Start: 11:38

TransGlobe Energy Corporation (TGA)

Q2 2012 Earnings Call

August 9, 2012 11:00 AM ET

Executives

Ross Clarkson – President and CEO

Randy Neely – VP-Finance and CFO

Lloyd Herrick – VP and COO

Albert Gress – VP, Business Development

Analysts

Fredrick Kozak [ph] – Independent Gas Oil

David Frisbie – First Energy Capital

Al Stanton – RBC

Gerry Donnelly – First Energy Capital

Gavin Wylie of Deutsche Bank

Presentation

Operator

All participants thank you for standing by your conference is ready to begin. Good morning ladies and gentlemen and welcome to the TransGlobe Energy Corporation conference call and webcast. This webcast includes certain statements that may be deemed to be forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. All statements in this webcasts 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, world production performance, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions.

I would now like to turn the meeting over to Mr. Ross Clarkson, President and Chief Executive Officer. Please go ahead Mr. Clarkson.

Ross Clarkson

Good morning everyone and welcome to TransGlobe Energy Corporation’s second quarter 2012 conference call. This is Ross Clarkson, President and CEO and with me I have Mr. Lloyd Herrick, Vice President and COO; Mr. Randy Neely, Vice President of Finance and CFO; and Mr. Albert Gress, Vice President of Business Development.

We’re going to start out with a summary of the financial and operating highlights and then we will move in to a discussion of some of the drilling results from Q2 and our plans of for the future and then we’ll follow that by a Q&A session.

Randy Neely will review the financial and highlights of the quarter starting on the next slide.

Randy Neely

Thanks Ross, good morning? First let’s note that all dollar figures that we speak of in this presentation are in US dollars. Gross revenues for the quarter were $148 million representing an increase of 30% over Q2 2011 and for the first six months of 2012, revenues were $307.5 million, a 45% increase over 2011.

Revenues were up principally due to our increased production which averaged 16,978 barrels a day for the quarter and 16,850 barrels a day for the first six months of 2012. These production levels represent a 44% and 46% over the same periods in 2011. Q2 funds-flow from operations were strong at $35.2 million with the first six months at $71.3 million. These figures represent a 15% and a 28% increase over the same periods in 2011. Growth in funds-flow were lower than revenue growth principally due to the majority of our production growth coming from the West Bakr PSC which has a lower profit sharing arrangement than our West Gharib PSC.

Q2 net earnings were $30.1 million but were again impacted materially by the accounting for the convertible debenture which on mark-to-market basis resulted in an $8.8 million gain in the quarter versus a $7.8 million loss in Q1. This occurred as a result of the market prices of the convertible debenture falling from $1.08 at the beginning of the quarter to $0.99 at the end of the quarter and while these fair value adjustments are made in accordance with IFRS, they do not represent a cash expense or an increase in the future cash outlay required to repay the convertible debentures.

Earnings for the first six months of the year were $41.1 million. On a diluted basis the company posted a second quarter and six months earnings per share of $0.25 and $0.50 respectively. The average price received for all our sales in Q2 is $95.84 a barrel, that’s down 9% from Q2 2011 and the average price received for oil sales in the first six months was $100.28 which is essentially unchanged from the same period in 2011 which is $101.46. As a percentage of Brent, the oil prices fees was approximately 88% thus far in 2012 versus 90% in 2011. This is principally due to a lower price being received for West Bakr crude and lower Yemen production which received near Brent pricing. We continue to achieve very strong after tax operating netbacks of $26.49 in the quarter and $27.02 for the first six months ended June 30 th. These figures are down fromQ2 2011 at $31.82 and for the first six months of 2011 at $30.32. This is chiefly as a result of 80% of our traction [ph] growth in Egypt coming from West Bakr which achieved a lower price and has a lower sharing profit oil than the West Gharib PSC and also due to the fact that S-1 production was shut in for the entire first half of 2012.

During the quarter we collected $41.4 million in accounts receivable bringing our year, our first six months total to $56.9 million, $29.5 million of that amount was collected through a half tanker listing which was done in March and collected in April. We now have a full tanker listing schedule for the fourth quarter and subsequent to the end of the second quarter we’ve collected an additional $12.2 million. During the quarter we spent $37.5 million on capital expenditures which include the acquisitions of the subsidiary holding companies that own the interest in the South Alamein and South Mariut PSCs.

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