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Companies, Extractive Industry, Extractive Resources

TransGlobe – Foreign Extractive Industry Companies in #Yemen – looking for information

Original article here

TransGlobe is a Canadian-based, publicly traded, oil exploration and production company whose activities are located in two geographic areas, the Arab Republic of Egypt (“Egypt”) and the Republic of Yemen (“Yemen”). Egypt and Yemen include all the Company’s exploration, development and production of crude oil.

The recent political instability in Egypt and Yemen could present challenges to the Company if the issues persist over an extended period of time. TransGlobe’s management believes the Company is well positioned to adapt to the current political situations in Egypt and Yemen due to its increasing production, manageable debt levels, positive cash generation from operations and the availability of cash and cash equivalents.

 Yemen
                                                Nine Months Ended September 30
        ----------------------------------------------------------------------------
                                                  2011                  2010
        ----------------------------------------------------------------------------
        (000s, except per Bbl amounts)            $      $/Bbl          $      $/Bbl
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Oil sales                            51,449     108.37     55,985      77.33
        Royalties and other                  23,065      48.58     25,857      35.71
        Current taxes                         6,477      13.64      7,158       9.89
        Operating expenses                    6,474      13.64      6,942       9.59
        ----------------------------------------------------------------------------
        Netback                              15,433      32.51     16,028      22.14
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
                                               Three Months Ended September 30
        ----------------------------------------------------------------------------
                                                  2011                  2010
        ----------------------------------------------------------------------------
        (000s, except per Bbl amounts)            $      $/Bbl          $      $/Bbl
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Oil sales                            23,485     112.55     17,919      76.77
        Royalties and other                   9,452      45.30      8,491      36.38
        Current taxes                         2,553      12.24      2,338      10.02
        Operating expenses                    2,697      12.93      2,395      10.26
        ----------------------------------------------------------------------------
        Netback                               8,783      42.08      4,695      20.11
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------

In Yemen, the netback per Bbl increased 109% and 47%, respectively, in the three and nine months ended September 30, 2011 compared with the same periods in 2010. This is due to increases in oil prices of 47% and 40%, respectively, in the three and nine months ended September 30, 2011 compared to the same periods in 2010 and reduced royalty rates in the third quarter of 2011.

Royalties and taxes as a percentage of revenue decreased to 51% and 57%, respectively, in the three and nine months ended September 30, 2011, compared with 60% and 59%, respectively, in the same periods in 2010. Royalty and tax rates fluctuate in Yemen due to changes in the amount of cost sharing oil, whereby the Block 32 and Block S-1 Production Sharing Agreements (“PSAs”) allow for the recovery of operating and capital costs through a reduction in Ministry of Oil and Minerals’ take of oil production. The royalty rate was significantly influenced by the shut-in of Block S-1 production from March 17, 2011 through to July 16, 2011. During the shut-in period on Block S-1, the Company continued to incur the majority of the operating costs, as well as amortize its capital costs for cost recovery purposes. The recovery of all the costs incurred during the shut-in period resulted in a reduction of the royalty and tax expense of $10.23/Bbl once production was restarted at Block S-1 in the third quarter.

Operating expenses on a per Bbl basis for the three and nine months ended September 30, 2011 increased by 26% and 42%, respectively, mostly due to increased costs of operations relating to the unstable political situation in Yemen as well as decreases in production volumes of 11% and 34%, respectively. These decreases in production volumes are mainly the result of production being shut-in on Block S-1 from March 17, 2011 through to July 16, 2011. While production volumes were down, the Company continued to incur the majority of the operating costs on Block S-1 which significantly impacted operating expenses per Bbl.

Production from Block S-1 was shut-in on October 8, 2011 following an attack on the oil export pipeline, and production will remain shut-in until repairs to the export pipeline can be completed. It is difficult to predict when production will resume as local tribal groups are currently preventing access to the pipeline.

In Yemen, total capital expenditures in 2011 were $5.6 million (2010 – $4.6 million). Two oil development wells were drilled in the first nine months of 2011 at Block S-1, along with one oil exploration discovery well and one dry hole at Block 72.

Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint Venture Partners) has a remaining minimum financial commitment of $3.0 million ($0.8 million to TransGlobe) for one exploration well. The first, 36-month exploration period commenced March 8, 2008. During the first quarter of 2011, the Contractor received an extension on the first exploration period to September 8, 2011 and subsequently has declared Force Majeure under the PSA due to logistic and security issues. The Company issued a $1.5 million letter of credit (expiring November 15, 2011) to guarantee the Company’s performance under the first exploration period. The letter is secured by a guarantee granted by Export Development Canada.

YEMEN EAST- Masila Basin

Block 32, Republic of Yemen (13.81% working interest)

Operations and Exploration

No wells were drilled during the third quarter.

Production

Production from Block 32 averaged 3,144 Bopd (434 Bopd to TransGlobe) during the quarter, representing a 8% decrease from the previous quarter primarily due to natural declines.

In October, production averaged approximately 2,935 Bopd (405 Bopd to TransGlobe).

Block 32 production is exported to the Indian Ocean via the Nexen operated export pipeline which has not been impacted by recent political unrest in Yemen.

Quarterly Block 32 Production (Bopd)

                                                       2011                     2010
        ----------------------------------------------------------------------------
                                                Q-3        Q-2        Q-1        Q-4
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Gross production rate                 3,144      3,401      3,869      4,206
        TransGlobe working interest             434        470        534        581
        TransGlobe net (after royalties)        259        263        241        344
        TransGlobe net (after royalties
         and tax)(i)                            201        195        135        265
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------

(i) Under the terms of the Block 32 PSA, royalties and taxes are paid out of the Government’s share of production sharing oil.

Block 72, Republic of Yemen (20% working interest)

Operations and Exploration

The Government has approved a six-month extension to the second exploration period and has extended the expiry date to January 11, 2012. All work commitments of the Second exploration period have been completed.

YEMEN WEST- Marib Basin

Block S-1, Republic of Yemen (25% working interest)

Operations and Exploration

No wells were drilled during the quarter.

Production

Production averaged 7,336 Bopd (1,834 Bopd to TransGlobe) during the third quarter with the export pipeline in operation from July 15th to the end of the quarter.

Subsequent to the quarter, production averaged approximately 1,680 Bopd (420 Bopd to TransGlobe) during October which was impacted by the shut-in of the export pipeline on October 8th. The oil export pipeline from Marib to the Ras Eisa port on the Red Sea remains shut down. Production from TransGlobe’s An Nagyah field on Block S-1 is shut-in until repairs to the export pipeline can be completed. The pipeline has been the target of a number of attacks since production resumed in mid-July (ending a four month shut-in period) and was typically repaired within 24 to 48 hours, which did not impact production. The most recent attacks on the pipeline have not been repaired due to local tribal groups preventing access to the pipeline. It is difficult to predict when production will resume. TransGlobe’s working interest share of production was approximately 2,250 Bopd prior to being shut-in on October 8th.

        Quarterly S-1 Block Production (Bopd)
                                                     2011(ii)                   2010
        ----------------------------------------------------------------------------
                                                Q-3        Q-2        Q-1        Q-4
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Gross production rate                 7,336          -      7,784      9,068
        TransGlobe working interest           1,834          -      1,946      2,267
        TransGlobe net (after royalties)      1,097          -      1,003      1,188
        TransGlobe net (after royalties
         and tax)(i)                            907          -        758        895
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------

(i) Under the terms of the S-1 Block PSA, royalties and taxes are paid out of the Government’s share of production sharing oil.

(ii) Production shut-in from March 17 to July 15, 2011. Subsequently shut-in on October 8, 2011.

Block 75, Republic of Yemen (25% working interest)

Operations and Exploration

The PSA for Block 75 was ratified and signed into law effective March 8, 2008. The first, three-year exploration phase has a work commitment of 3-D seismic and one exploration well. The 3-D seismic was acquired in 2009. One exploration well was planned as part of the 2011 Block S-1/75 drilling program. With the suspension of the Block S-1/Block 75 drilling program in the first quarter of 2011, the Operator has declared Force Majeure under the PSA due to logistics and security concerns associated with the suspended drilling program.

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