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Re: Dundee issues report on Trans-Globe this morning with buy and $8 target maintainedTransGlobe Reports Q1/2010 Results with Impressive Production, Funds Flow, Earnings Growth - Dundee analysis
Source: See Note 1 TGL: Price/Volume Chart
Source: Thomson ONE Company Description TransGlobe Energy Corporation is a Calgary- based, growth oriented oil and gas exploration and development company focused on the Middle East/North Africa region with production operations in the Arab Republic of Egypt and the Republic of Yemen. Event: TransGlobe announced Q1/10 Results with production growth of 12% Q/Q, funds flow growth of 97% Q/Q, and earnings growth of 361% Q/Q Impact: Positive Overview: ! Production for Q1/10 averaged 9,694 bbls/d, in line with our 9,776 bbls/d forecast. This production rate is a 12% increase over the previous quarter, and an 11% increase over Q1/09. ! FFPS for Q1/10 was US$0.29 exactly in line with our forecast of $0.29 and slightly above with the Street's expectation of $0.24. FFPS increased 97% quarter over quarter, and was 107% higher than Q1/09 due to both higher production volumes and Brent Oil prices that were 71% higher Y/Y. EPS for Q1/10 was US$0.17 was in line with our forecast of $0.15 share and above the Street's expectation of $0.12. ! A successful fracture stimulation program on four wells was completed targeting the Nukhul formation at Arta in Egypt, raising production from 130 bbls/d in January to 900 bbls/d in April. The step-out appraisal well Arta-13 has been successfully drilled, confirming a western extension to the Nukhul pool, opening possibilities for further drilling locations and fracture stimulations. ! Unfortunately Sahab-1, the third exploration well on the East Ghazalat block was D&A, but Safwa-1, the second exploration well produced 300 bbls/d of 38 degree oil on short-term test, confirming reservoir quality rock. A step-out appraisal well is currently drilling. ! A second drilling rig has been contracted to focus on exploration and appraisal in the southern region of the West Gharib concession. The contract for the existing drilling rig has been extended for 12 months to continue drilling in the northern region of West Gharib including Arta and North Hoshia. Conclusion: Development Positive, Exploration Potential Remains ! We are maintaining our BUY recommendation on TransGlobe and like the improving development drilling momentum at the West Gharib Concession in Egypt. Our 12-month target price of C$8.00/share is based on an equal weighting between a 1.0 times multiple of our risked upside after-tax NAV estimate and a 5.0 times multiple of our 2010E EV/DACF estimate. ! TransGlobe is 1 for 3 on exploration this year to date and has 5 remaining exploration wells planned for 2010 so there is still the opportunity for additional upside beyond 2010 development if the company can achieve drill-bit success.
Arta (TGL 100%) Fracture Stimulation Program Charges Ahead ! The company successfully fracture stimulated ("frac") the Nukhul formation in Arta-9 in February, followed by three additional fracs in Mid-March in Arta-2, 4, and 8. ! Early production rates indicate that the vertical fracture stimulated Arta wells will stabilize in the 100-300 bbls/d range, more than a ten-fold increase of pre-frac production rates. ! The Arta-13 well has been drilled as a western extension to the Arta Nukhul pool. The well will be cased and completed as a producer. The success of Arta- 13 confirms the extension of the Arta pool, and creates potential additional drilling locations. ! An expanded frac program on three to five existing vertical producers and a four-stage frac on the Arta-12 horizontal well is now planned for the next two months followed by fracs at Arta-6 and Arta-13. The Arta-12 multi-stage horizontal frac will be the first ever performed in Egypt. ! TGL estimates 28 mmbbls of oil in place at Arta with a potential 5 mmbbls of incremental recoverable oil assuming 20 additional vertical wells. No incremental reserves from this frac program at Arta were included in the YE 09 reserve report. Thus any further success with this program would lead to reserve additions in 2010. ! According to TGL the results of the Arta frac stimulations could lead to a much larger, resource-type play. A Nukhul development fairway has been identified encompassing four producing fields and three undrilled prospects on TransGlobe lands. The company estimates that more than 50 potential drilling locations are located on these structures. Improving Brent Oil Price, Differentials Making the Difference ! TransGlobe's netback per barrel in Egypt has increased 151% in the first quarter of 2010 relative to the same period of 2009. This is a result of the 71% increase in oil prices, a 27% increase in West Gharib production volumes over the same period, and a substantial improvement in West Gharib Brent dated oil price differentials. ! The average realized West Gharib oil price gravity/quality adjustment has improved from a 28% differential to average dated Brent oil in Q1/09 to 10% in Q1/10. This new lower differential is expected to be maintained for the foreseeable future due to new contract terms with the Egyptian Government. Sahab-1 on East Ghazalat (TGL 50%) is D&A ! A total of three exploration wells were planned on the East Ghazalat block in the first quarter, resulting in one potential commercial success with Safwa-1, and two D&A wells with Gawad-1 and Sahab-1. TransGlobe has a non-operating interest of 50% on the East Ghazalat block. ! As part of the farmin agreement TransGlobe agreed to pay 100% of the $9 million cost of the three exploration wells for a 50% interest in the block. With the completion of Sahab-1, TransGlobe has met its obligations and will now pay 50% of costs for a 50% interest on a go-forward basis. ! We previously adjusted our NAV to reflect the Gawad-1 dry hole and have now also reflected Sahab-1 as a dry hole in our model. The impact is a 4% decrease to our risked upside after-tax NAV estimate. Appraisal Well at Safwa in East Ghazalat Currently Drilling ! Safwa-1, the second exploration well on the block, was cased as a potential oil well, and tested at a rate of 300 bbls/d of light oil. The company is currently drilling a step-out well (Safwa NW-1) to appraise the Safwa field.
An Naeem Gas Remains Stranded ! Discussions between Occidental Petroleum and the MOM regarding a potential development project to produce gas at An Naeem (Block S1 Yemen, TGL 25%) have not progressed. ! We indicated in our initiating report (February 8, 2010) that cash flow from An Naeem may not be seen until 2012 at the earliest based on the slow nature of the negotiations with the MOM and the infrastructure requirements required prior to first sales gas. ! We have included no value for An Naeem gas in our risked NAV estimate but the project does remain as option value for investors willing to hold on for the long term. East Yemen Winding Down With the Focus Turning to Egypt ! No wells were drilled on East Yemen Block 32 (TGL 13.8%) during the first quarter, and production (638 bbls net to TGL) decreased 4% Q/Q due to natural declines. ! On East Yemen Block 72 (TGL 33%), one exploration well is planned for the second half of 2010. The joint venture partnership has agreed to farm-out a portion of their interests in Block 72. The farm-out will allow TransGlobe to allocate more capital towards the Egypt development program. ! On East Yemen Block 84, the joint venture partners have decided to terminate the PSA ratification process. TGL confirms plans for West Yemen Block S-1 (TGL 25%) and Block 75 (TGL 25%) ! The joint venture partnership on Block S-1 has approved a 2010 budget to drill up to 8 horizontal development wells on Block S-1 and one exploration well on Block 75. Drilling is expected to commence during May or early June, with the one exploration well planned to spud in the fourth quarter of 2010. Maintaining BUY Recommendation and 12-Month Target Price of C$8.00 ! We are maintaining our BUY recommendation on the company and our 12- month target price of C$8.00/share. We like the growth momentum the company is demonstrating with its development projects at its West Gharib concession in Egypt. Furthermore, TransGlobe has 5 remaining exploration wells planned for 2010 so there is still the opportunity for additional upside beyond 2010 development if the company can achieve drill-bit success. ! Our target price is based on an equal weighting between a 1.0 times multiple of our after-tax upside NAV estimate and a 5.0 times multiple of our 2010 EV/DACF estimate. |
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Msg # | Subject | Author | Recs | Date Posted |
872 | Re: Dundee issues report on Trans-Globe this morning with buy and $8 target maintained | delt1970 | 0 | 5/7/2010 2:22:53 PM |
873 | Re: Dundee issues report on Trans-Globe this morning with buy and $8 target maintained | delt1970 | 0 | 5/7/2010 2:37:29 PM |