Transglobe to Merge, Extend and Modernize its Eastern Desert Concessions

Monday, December 7, 2020

TransGlobe Energy Corporation announced it has reached an agreement with the Egyptian General Petroleum Corporation (EGPC) to merge the company’s three existing Eastern Desert concessions (the West Gharib, West Bakr and North West Gharib concessions) into a new modernized concession agreement. The Agreement is subject to the usual Egyptian Parliamentary ratification and the satisfaction of other closing conditions. All dollar values are expressed in US dollars unless otherwise stated.

Randy Neely, President and CEO stated, “After a lengthy and constructive negotiation, I believe we have arrived at an incredible win-win amendment for both TransGlobe and EGPC. The efficiencies gained from the consolidation of our Eastern Desert concessions, along with the improved netbacks and extended term, are expected to provide TransGlobe with the fiscal incentive and time to unlock meaningful additional reserves and production through the application of modern technology and optimization of infrastructure. This will also allow us to move forward with important ESG initiatives to improve our environmental footprint as well as continue to be a major employer in the Ras Gharib region for the foreseeable future.

“We intend to continue to manage the finances of the Company with a conservative approach and expect that, under a reasonable range of oil prices, the Company will be able to fund the equalization payments and a continuous capital investment program from existing resources and cash flows. In addition, as soon as practicable, direct returns to our shareholders will be prioritized.

“This Agreement is a critical first step in achieving our stated goal of becoming a leading independent Middle East/North Africa region cashflow-focused energy producer. The Merged Concession will provide the platform to allow us to increase our efforts on completing complementary mergers and acquisitions to further support this objective.

“We appreciate the commitment and vision of the leadership team at EGPC to extending the life of these mature oil fields and we look forward to working closely with them to realize the significant mutual benefits of this Merged Concession. In the immediate future we will begin to plan for increased activities that should in the near to medium term arrest and reverse recent production declines.”

Key Elements of the merged concession include:

The West Gharib, West Bakr, and North West Gharib concessions, including all existing development leases within these concessions, will be merged into the Merged Concession with a new 15-year development term and a 5-year extension option.
Modernized financial concession terms promote increased investment and implementation of new technology in the mature fields through:
Improved cost recovery terms to support continued investment in higher-cost mature fields.
Production sharing terms scaled to oil prices to support TransGlobe’s returns during lower oil prices and government returns during higher oil prices.
Improved netbacks and increased cash flows are expected to fund new investments in incremental recovery projects.
Incremental, internally estimated, Company Gross risked best estimate Economic Contingent Resource volume of 59.1 million barrels oil (Company Contingent Resources are separate from Company reserves; please see Advisory Regarding Oil and Gas Information later in this release).
Subject to final ratification, the Company will pay EGPC a signature bonus and an equalization (or modernization) payment in installments. The Company anticipates that the equalization payment and signature bonus will be funded from existing resources and expected improved cash flows.
The equalization payment compensates EGPC for the improved fiscal terms on the underlying base forecasted production. An initial equalization payment of $15 million and signature bonus of $1 million are due on ratification, with five further annual equalization payments of $10 million each being made over five years (beginning February 1, 2022 until February 1, 2026).
Minimum financial work commitments of $50 million per each five-year period of the primary development term, commencing on the February 1, 2020 effective date. All investments which exceed the five-year minimum $50 million threshold will carry forward to offset against subsequent five-year commitments.
For context, the Company’s average annual capital expenditures in Egypt over the last five full calendar years has been greater than $30 million per year, and the Company expects to fund these future investments from existing resources and future cash flows.
Merge the existing Joint Venture Operating Companies’ (Dara Petroleum Company, West Bakr Petroleum Company and North West Gharib Petroleum Company) assets, facilities, and infrastructure into a new Joint Venture Operating Company in order to substantially increase operational efficiencies.

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Transglobe to Merge, Extend and Modernize its Eastern Desert Concessions

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Transglobe to Merge, Extend and Modernize its Eastern Desert Concessions

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