TransGlobe Completes South Alamein Purchase, Looks To Bid Round Awards
Canadian independent TransGlobe has purchased the Egyptian assets of Spanish firm Cepsa, giving it 100% of the South Alamein concession in Egyptï¿½s Western Desert. This follows last monthï¿½s completion of its purchase of the former Egyptian assets of US independent El Paso, including the other 50% of South Alamein. TransGlobe expects the Cepsa deal to be finalized late this month.
Both deals are somewhat convoluted. TransGlobe originally agreed to buy Cepsaï¿½s 50% South Alamein stake for $3mn in June 2011. However, with this deal still not approved by the Egyptian authorities a year later, TransGlobe changed tack and decided to purchase ï¿½Cepsa Egyptï¿½ outright, for which regulatory approval is much more straightforward. Cepsa was bought by Abu Dhabiï¿½s International Petroleum Investment Company (IPIC) in August 2011 (MEES, 8 August). Cepsa Egyptï¿½s only significant asset is the South Alamein stake. The price remained $3mn.
Meanwhile, the purchase of El Pasoï¿½s Egyptian assets for $21.7mn (including $6.7mn for inventory and fixed assets) was finalized on 7 June. TransGlobe did not make the purchase directly from El Paso, but from New York-based buyout firm Apollo Global Management. Together with ï¿½affiliated investment fundsï¿½ and Korean state oil firm KNOC it purchased El Pasoï¿½s upstream assets earlier this year before agreeing to sell the Egyptian portion to TransGlobe on 1 May. This gave TransGlobe 50% of South Alamein as well as a 60% operatorï¿½s stake in the South Mariut concession 20km to the north (see map). Germanyï¿½s RWE has the other 40% of South Mariut, where an exploration well is planned later this month. As with the latest Cepsa agreement, the El Paso deal was structured so that TransGlobe purchased the ï¿½companyï¿½ responsible for El Pasoï¿½s Egyptian interests, streamlining regulatory approval.
Finalization of the Cepsa purchase will remove a significant amount of uncertainty over TransGlobeï¿½s Egyptian plans. The South Alamein and South Mariut blocks form a key part of the companyï¿½s attempts to develop the Western Desert as a second Egyptian production base alongside its Eastern Desert concessions near to the Gulf of Suez.
TransGlobeï¿½s Egyptian Acreage
South Alamein Plans
TransGlobe says that South Alamein represents both a development and an exploration opportunity. Its priority for the block is bringing the 2010 Boraq-2X discovery to production, with initial volumes of 1,700 b/d targeted for the first half of 2013. Three Boraq appraisal/development wells are planned for the third quarter this year, as long as the Cepsa purchase is finalized and the ï¿½necessary well approvalsï¿½ are received from the Egyptian authorities in a timely manner. A development lease ï¿½ for which TransGlobe will apply once the Cepsa transaction finalizes ï¿½ will also be needed in order for production to start. And, given recent extensive Egyptian bureaucratic delays, it is likely to be the key factor governing the timing of first production. Rapid production start-up is possible due to the proximity to existing infrastructure, ï¿½which should reduce development time and capital,ï¿½ TransGlobe says, adding that it has identified six further ï¿½drillable exploration prospectsï¿½ on the concession, based on 3-D seismic. The blockï¿½s exploration phase has entered its final two-year extension and expires in April 2014.
The South Alamein and South Mariut purchases, together with TransGlobeï¿½s 50% of the nearby East Ghazalat concession, have greatly expanded the companyï¿½s Western Desert footprint. Operator Vegas is in the process of selling its East Ghazalat stake and TransGlobe has pre-emption rights. TransGlobe is hoping for first 1,000 b/d East Ghazalat production from the blockï¿½s Safwa discovery in the third quarter and has recently drilled two further nearby appraisal wells ï¿½ although the first of these was dry. It has also bid for the nearby South Ghazalat concession in Egyptian General Petroleum Corporationsï¿½ (EGPCï¿½s) latest bid round. Although here it faces competition from key Western Desert producer Apache as well as Chilean state firm ENAP (see table page 22 and MEES, 9 July).
However, TransGlobeï¿½s key Egyptian production base will remain the companyï¿½s two Eastern Desert blocks near to the Gulf of Suez. TransGlobe production hit just over 17,000 b/d in May of which 16,700 b/d (98%) was in Egypt ï¿½ all from these two blocks (12,600 b/d West Gharib and 4,100 b/d at West Bakr, bought from Japanï¿½s Inpex at the end of 2011 ï¿½ MEES, 30 April). Three rigs are currently active on the companyï¿½s Egyptian acreage ï¿½ one each on West Gharib, West Bakr and East Ghazalat.
TransGlobe expects 2012 production of 18,000 b/d, up around 30% on 2011. This presumes East Ghazalat start-up at 1,000 b/d before the end of the year. With South Alamein crude testing at 38ï¿½API and that from East Ghazalat at 34ï¿½API, TransGlobe expects both to sell at ï¿½close to Brent,ï¿½ compared to a typical $12/B discount to Brent for heavy West Gharib and West Bakr crude.
Further ahead the company is looking to the four blocks it has bid for in Egyptï¿½s yet-to-be-awarded 2011-12 licensing round ï¿½ particularly the three that surround its Eastern Desert blocks ï¿½ to power its output growth. The company is targeting a more than doubling of production to 40,000 b/d (almost all in Egypt) over the next five years (see chart). Of course this projection is based on optimistic predictions (not least that TransGlobe wins a significant proportion of the acreage it has bid for) though TransGlobe says it is ï¿½based on currently identified opportunities and upside predictions.ï¿½
TransGlobeï¿½s ï¿½Road To 40,000 B/Dï¿½*
*All except ï¿½Yemenï¿½ are in Egypt.
TransGlobe says that as long as Brent remains above $50/B its Egyptian plans will be self-financing. It received $34.8mn of receivables from the Egyptian Government over the 71 days to 10 June, equivalent to just under $30/B (based on first quarter production volumes). This is more or less in line with monies due given that TransGlobe says its West Gharib netback is $32/B at $110/B Brent, while that for West Bakr is $14.50/B and that the former accounts for around three-quarters of the companyï¿½s production. TransGlobe says that having rapidly developed its acreage and having ramped up production its ï¿½credibility with the Egyptian authoritiesï¿½ gives it a ï¿½competitive advantageï¿½ in Egypt.
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