TransGlobe Energy Corporation
Q4 2015 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

All participants, please stand 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 U.S. Private Securities Litigation Reform Act of 1995. All statements in this webcast 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, well 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 fourth quarter 2015 conference call. This is Ross Clarkson, President and CEO. With me, I have Mr. Lloyd Herrick, Vice President and COO; and Mr. Randy Neely, Vice President Finance and CFO. As usual, we will start out with a summary of the financial and operating highlights. Randy Neely will now review the financials and highlights of the quarter starting on the next slide.

[Randy Neely:]

Thanks, Ross. Good morning. 2015 was by most measures a very difficult year for TransGlobe and the entire industry. At this time last year there was a sense that prices could recover to more sustainable levels, but those hopes faded as summer approached and oil prices resumed their downward trajectory. As a result, the second half of the year, and in particular, Q4 proved to be one of the most difficult periods in memory. These difficult times of 2015 completely overshadowed the company's achievements of obtaining the cooperation of EGPC in directly exporting our crude oil entitlement barrels. Since the beginning of the Arab spring and the first political revolution in Egypt in January of 2011, in our view the biggest overhang on TransGlobe share price was our exposure to EGPC credit risk and the significant delays in the collection of our accounts receivable. In 2015, all of our Eastern Desert entitlement barrels were sold directly to third-parties, or remained in storage at year end. These third-party sale transactions are settled in approximately 30 days after lifting occurs and are backed by guaranteed letters of credit, effectively eliminating all of our credit risk. Unfortunately our sales cycle was irregular at this time and resulting in lumpy revenues, demonstrated by the fact that we did not sell any entitlement barrels in Q4. We have also had difficulty in obtaining adequate advance notice of our tanker slots. At times, we have had only four or five weeks' notice, which is not adequate time to maximize sales target [ph]. We are working with EGPC, and are hopeful we will remain -- we will make improvements on these in the near future. However, we do feel that these items are relatively minor in comparison to the credit risk exposure we previously faced. Sales volumes for the year averaged 11,977 barrels a day, while production averaged 14,511 barrels a day, down 10% over 2014. This decrease in production is chiefly a result of not bringing on any development wells in 2015, and of course natural decline. Q4 sales volume of 7,205 barrels a day represent only our royalty in tax barrels delivered to EGPC during the quarter, except for some minor volumes from East Ghazalat for the first 13 days in October before we sold it. All of our Q4 Eastern Desert produced entitlement barrels were held in inventory at year end. At the end of the year, the company held approximately 923,000 barrels in inventory. Our first cargo of 2016 was sold in February at February Dated Brent less $14.05. And our next lifting is scheduled for the end of April. During the year, we collected approximately 95 million in outstanding accounts receivable from EGPC, which left our outstanding balance with EGPC at approximately 22 million at the end of 2015. We expect that the amounts due from EGPC will decline to a very modest level by the end of this year. The company had negative income of 105.6 million in the year due to the low operating results and an impairment charge of 85.4 million, offset by 36 million deferred tax recovery. Fund flow for the year was negative 8.9 million or $0.12 a share, and $11.01 million or $0.15 a share for the fourth quarter. However, if all of our entitlement oil had been sold in periods produced, our funds flow from operation would have been approximately positive 15 million or $0.21 a share for the year. Of course, the biggest impact for our business this past year was low oil prices. Realized oil prices for 2015 were $42.93, or 51% lower than this past year. This was due to both Brent decreasing in value and the West Gharib [ph] differential widening in 2015, due to the abundance of crude oil supply, and in particular, heavy oil supply. These elements are still in place in the first quarter in 2016. In response to low oil prices, the company made a concerted effort to decrease cost across the board. Corporate operating costs were down 20% for the year on a gross basis inclusive of amounts capitalized inventory. In Egypt, OpEx was down approximately 10% on a per barrel basis. These decreases are largely a result of decrease in fuel costs and the disposition of our interest in East Ghazalat as well as our Yemen properties. In addition, the company went through great pains to decrease general and administrative cost this past year. Year-over-year G&A expenditures are down 7 million or 22%. These decreases are a result of a combination of things with the large savings coming from insurance, travel, stock-based compensation, foreign exchange, and the most painful payroll which is offset by termination costs. We ended the year with 126 million in cash and 153.8 million in positive working capital. As a result of the continued low oil price environment, the company determined despite our strong financial position that it would be prudent to suspend our dividend payments of the time being. Our intention is to re-implement the dividend when the business can support it. We think it is in the best interest of our shareholders to ensure we maintain a strong financial position in these highly uncertain times. Now, over to Lloyd.

[Lloyd Herrick:]

Thanks, Randy. This slide summarizes continuity of our year end reserves by category, as press released on January 22, this year. On a CUPI [ph] basis, reserves at year end 2015 were 28.7 million barrels, which represents a 14% reduction from year end 2014. Year-over-year, reserves were lower primarily due to minimal capital investment, 5.3 million barrels of production from the sale of East Ghazalat reserves in 2015. Year-over-year reduction in respect to reserves was partially offset by performance increases at Arta and at the West Bakr pools. Next slide; this slide summarizes the present guided future net revenue for the company at year end 2015 and '14. At year end 2015, the after-tax NPV of the company's 2P reserves using 10% discount was 195 million, approximately 43% lower than year end 2014. The year-over-year decrease in NPV is primarily attributed to lower reserves and a lower price forecast of year end 2015. Reduction in the after tax future net revenues were partially offset by the reduction in future development capital of approximately $20 million on the 2P basis, which was primarily associated with better recoveries per well and lower drilling cost in K field undeveloped reserves along with a better pricing differentials for West Gharib crude sales stream due to our direct marketing. Next slide; this slide shows daily production by concession for the past 12 months, production was held pretty stable throughout the first three quarters of 2015 despite minimal investment during the year. In Q4, productions have come to minimal investments; natural decline is beginning to impact production. December and into 2016, production has been further impacted by reduced workover comp changes on higher cost wells due to very low oil prices during this period. The recent increases in Brent to near $40 a barrel in the low -- in the high 20s is encouraging. And if sustained above $40, a number of higher cost wells could be returned to production. Due to the sensitivity to oil prices, we are forecasting an average production rate, 12,000 barrels days in Q1. Guidance for Q2 will be provided in Q1 financial results in May. Next slide; this slide summarizes our planned 2016 capital program which was approved in early November 2015. As everyone knows, since November 2015 the price of oil has dropped significantly below the $50 plus levels of late 2015. In response to much lower oil prices, we've further reduced capital spending across the business including approximately $10 million of development, drilling, projects, and maintenance capital which now a contingent on improving oil prices. This could reduce capital spending to $30 million level for 2016. Next slide; this slide is a summary of the 2016 plan based on current pricing and really the primary focus will be on three main areas

[Ross Clarkson:]

Okay, we are on Slide 9, which shows our West Gharib, West Bakr lands in dark yellow and orange. And those are the original core holdings in the Gulf of Suez and currently make up 100% of our producing assets. They are surrounded by the pale yellow lands which we acquired in the 2014 bid round and all of these lands are 100% working interest to TransGlobe. The West Gharib and West Bakr properties were acquired through separate transactions, which meant we inherited two independent JV companies or joint venture companies with independent boards, staff, and operating contracts. In late 2015, we were able to start consolidating those two companies into one JV, thereby saving on cost. The consolidation has resulted in cost reductions for staffing as well as savings through the contracting of only one service rig versus two rigs and running only one field camp, one set of inventory spare parts, and many other areas of duplication. When we bring the new discoveries on the pale yellow, Northwest Gharib land into production, they also will be managed by this single joint venture. We are very pleased that the government has worked with us to consolidate these JVs which will lead to longer term cost savings in our operations. As Lloyd mentioned, we had not been actively working to bring up production in these projects because of negative economics at the current oil price. However, we do have several thousand barrels a day production that we can bring on if we see consistent pricing in the high 40s or low 50s for Brent. The direct marketing of our entitlement oil through the costal pipeline and loading facilities is working well and we are getting the tendering and sale process smoothed out with each tanker load. We sold one tanker load in early February, and just this morning we finalized the sale of our April tanker load to an Indian buyer. As Randy said, this has really improved the credit risk profile for the company now that we have almost eliminated the receivable problem with the government. Let's move on to next slide, Slide 10. It is just a detailed map of the South K field, and you may recall we've been working for the last few years getting military approvals to drill in this area. And we finally achieved that and are now preparing to drill the first of three wells which are three of the starred locations on this map. And this is development drilling, because there were several wells drilled in this area by the previous operator which defined the pool. The area then became a military off-limits area for a number of years, so it was only produced by a couple of wells. And the star with the arrow pointing to it is the first well in our 2016 drilling program, just offsetting it to the Northwest is the K-28 well, which has produced over 1.2 million barrels to-date from only the upper 80 cents. So this is a very prolific pool. Based on our 3D seismic and the well information, we have mapped about 55 million barrels in place in this pool, and to-date, only 5.8 million barrels or just over 10% has been produced. We believe that recovery should be over 20%, which is more typical of the pools in the area. And that means there is a price there of over 5 million barrels sitting here that we have just gained access to. We've contracted a rate for the development and exploration drilling program, and we're now getting ready to start. We have seen a 20% reduction in drilling day rates and as much as 40% reductions in some of the service contracted rates, and this is going to lead to an overall reduction in our capital program just due to cost savings. The first well is going to spud around March 20, only about 10 days away and should take about three weeks. And after that we'll move straight into the exploration drilling which is on the next slide. So on this exploration I presented our 2016, 22 well exploration program in a summary form. We're targeting higher productivity formations in three main play types. The red beds which are like those found in our Arta field, the Miocene Clastic prospects are the same ones found in our Hana field and the HK and M fields. And then the pre-Rift prospects that are the same zones as those found in the offshore fields. This drilling program will commence in a few days, well actually in April after we drill the first development well, and then run through the balance of 2016 and now probably extend into 2017. The first well is pointed out on the slide; it's a similar structure to our Hana field located just to the Southwest or Southeast of that field. And the Hana field has produced over 13 million barrels to-date from approximately 45 million barrels in place. So these are very prolific fields if you can find them. For example, some of the wells in Hana had initial rates of 2,000 barrels a day of 26 API oil. Following that well, the rig will then move up to the Northwest to test look alikes to the Arta Red bed pool we discovered in 2010, once again targeting high productivity reservoirs. The risk statistical result assumes three to four successful discoveries out of 22 wells with a statistical result of 8 million to 26 million barrels of reserves found. And that's using an average chance of success between 17 and 20 -- 32% which is above normal for wildcat drilling. And this is wildcat drilling, but it's in a very oily area for play types that we know can work very well. And the only way to know what is there is to get out and drill wells, which we will be doing starting very soon. The great thing about working in this area is the access to the export facilities on the tidewater. Anything we find can be brought on fairly quickly and can be exported easily under our contracts. Moving on to Slide 12, that's our Western Desert lands. As you know we completed the 3D seismic acquisition program on South Ghazalat last year and then completed the processing in early January this year, and are now mapping up the structures on the block. We are also preparing bid tender documents for the additional 3D seismic over Northwest Sitra just immediately adjacent to the West, and that should be acquired either late 2016 or early 2017. Now, I'm very keen to get drilling out here, but we do need to get all the seismic data and properly map up all the structures first. The plan is to drill four exploration wells on these licenses in 2017. So in conclusion, I mean we're still in a very strong financial position. We're very well positioned to go through this downturn. I mean this is taking a lot longer than I expected to go through this downturn, but we are getting some indications that it's turning around. We'll continue to stir the capital programs, debt levels, reduce cost, and maintain that strong balance sheet that's going to see us through. We felt that dividend was unsupportable under the current price environment and the plan capital program, so we have suspended it. But, we'll continue to work on cost reductions in every area of the business and hopefully return to profitability in the near future. We have an exciting drilling program starting in about 10 days, which could lead to significant reserves and production growth in 2017. The past week saw a rebound in oil prices that may indicate we're seeing a bottoming phase of the downturn. Hopefully, we will be in a better price environment in 2017. On the merger and acquisition front, we have worked through evaluations on several companies and made offers to purchase. Length of this downturn is definitely stressing many companies with a lot of bankruptcies occurring. And this is leading to more available properties and more realistic price expectations. So, we still have that intent to add assets where we feel the price is right. One thing that has changed in our focus area is really we are really only focusing now on OECD countries with strong economics at the lower oil prices. We are looking for assets and countries that will be on a much lower risk spectrum with a much higher net backs than what we are experiencing in Egypt. That might mean there will be assets with a higher net backs will offset the size. With that, I would like to turn it over to the operator for a Q&A period in case anybody has any questions.

[Operator:]

Certainly. Thank you. We will now take questions from the telephone lines. [Operator Instructions] The first question is from Shahin Amini with TD Securities. Please go ahead.

[Shahin Amini:]

Good morning, gentlemen. A couple of questions on your -- well, first one, West Gharib storage and cargo lift logistics, so when you reach the peak of 920,000 barrels, I just wonder what are the storage constraints at West Gharib? And perhaps you could shed a bit more color on why you didn't actually have a mix in Q4 '15. You may have explained that, so I apologize if I am covering old grounds. And the second question is your February lift, could you perhaps elaborate further what is the CAGR go-to [ph], and although you mentioned a discount to Brent, what was actual Brent that discount supply history?

[Ross Clarkson:]

Go ahead, Lloyd.

[Lloyd Herrick:]

Okay. It's Lloyd here. Certainly on the storage side, we've -- there's quite a bit of facilities on the coast, but really our storage is more of a scheduling exercise. So, some of it's in the barrel, some of it's just scheduled for when we can get a lifting allocated from EGPC. As Randy said, it's been lumpy, and we are working through the process. EGPC had some commitments. So as it turned out, we didn't a quarter -- tanker lifting in the quarter, but we did get one in Q1, and we've already had another quarter of lifting in Q2 which we are going to lift in late April. As far as the pricing goes, it will be on the average of date of Brent. Randy, I am not sure if we have that number.

[Randy Neely:]

Yes, I think it was low 30s with the date of Brent average for the month.

[Lloyd Herrick:]

So when you take 14 off of that, it's a pretty small amount.

[Randy Neely:]

About $18 I think roughly.

[Lloyd Herrick:]

Yes.

[Randy Neely:]

Yes.

[Shahin Amini:]

Did that oil tanker go to Europe, or did it head to India?

[Lloyd Herrick:]

That particular one went to India.

[Randy Neely:]

India.

[Shahin Amini:]

India as well, okay.

[Lloyd Herrick:]

Yes. Because of the sulfur content of the West Gharib Brent, there is limited number of refineries that will take it.

[Shahin Amini:]

And so, India remains your primary market then for you crude?

[Lloyd Herrick:]

That has been traditionally the largest buyer last year of crude. We have had conversations with other markets, and we are working on that to increase the competition, but the closest and the biggest market for that crude is in India.

[Shahin Amini:]

Yes, but do you have any concerns with the uranium crudes coming back to market? I mean, do you see an impact on the market dynamics in the recent month or so?

[Lloyd Herrick:]

Absolutely. I mean, the Basrah Heavy coming on, the RIN [ph] has certainly widened out the differential. That's why we are seeing a $14 differential in this quarter. We expect over time that will close as the prices improve, but yes, we are feeling it, no question.

[Shahin Amini:]

And -- thanks, Lloyd. Just a very quick follow-up on the EGPC giving you access like giving you a slot. I mean, what drives that force, is it just a case of you having to wait for a window where you could bring your tanker in, and -- or other issues that could be impacting the…

[Lloyd Herrick:]

Primarily it's scheduling exercise, and they have tanker commitments, and we are relying on them to give us our window. We are certainly looking -- we will be bringing down that inventory quite a bit, but like we said, it's a learning process on both sides. They are not used to scheduling somebody else into their schedule.

[Shahin Amini:]

Okay. Well, thank you very much for your time. Thanks.

[Operator:]

Thank you. The next question is from Ian Macqueen with Paradigm Capital. Please go ahead.

[Ian Macqueen:]

Hi, guys. Just wondering if you could help me out with respect to sales; so, sales for the quarter in Q4 was 663,000 barrels approximately, but there were no lifitings in Q4. I assume that's later settlements. So once we fast-forward to Q1, you had 554,000 barrels lifted. Does that mean that that's actually going to be the sales number in Q1, or that would be about 6,000 barrels a day?

[Randy Neely:]

No. What you're -- Ian, it's Randy. What you are seeing there is when we deliver -- our sales are we include the amounts that we then account for as royalty from taxes. So, we basically deliver the barrel into the system, the government share are also sales. It gets booked on our books as royalties and taxes, and then the remainder of it, the entitlement barrels go into inventory. So what you are seeing there for Q4 sales is principally just royalties and taxes. There is a little bit of volumes associated with East Ghazalat after the first 13 days of October.

[Ian Macqueen:]

Okay. So if we look at your entitlement barrels that will be sold in Q1 is about 544,000 barrels?

[Randy Neely:]

Right. So Q1 will produce -- everything we produce there will be a portion of it that gets delivered to EGPC and that they will take in time. So that will be our sales, but we will book that as well to taxes. And then the entitlement portion will be our sales for the quarter, which will be the other portion of it.

[Ian Macqueen:]

Okay. Perfect. Okay, other question is, you said that there is a chance that you'll reduce some of your CapEx budget from the 41 -- by reducing principally development CapEx. You've also said in the past that you are in discussions about potentially delaying some of the commitments for Phase 1. What would be the hurdles and what's the likelihood of being able to delay some of those costs, because obviously it would be nice to see some of the cost push through to 2017?

[Lloyd Herrick:]

Yes. It's Lloyd here. So, on the development side, that's entirely up to us. And these prices continue. We would mark off approximately $10 million and push it into the following year. Some of that development dollars is some of those sub-K wells. We are going to drill one. We plan to drill three. If prices don't improve, we are probably just going to drill to push them. The rest would get pushed into next year. The other projects are things like the Northwest Gharib discoveries that we made in 2013. We haven't moved those forward. We are planning to bring some of those on at the end of the year. We could slow that a bit more, but it comes to a point in time when you have to move forward [indiscernible]. Exploration wise, we have had conversations about expansions and it may allow us to stretch it into next year, which will reduce some of that 22 million into next year if we go to a single rig line. Right now, we are starting with one rig. We have the contingencies to bring a second rig in mid-August, which would allow us to meet all our commitments by November, which is kind of the deadline for the first phase, but we've already had the indications we're going to get an extension on at least one of the confessions. So there is a scenario where we could push maybe $5 million-$6 million into 2017, by just going with the single rig line. So there is a number of moving pieces, but that's kind of where we are at, and that's very dependent on oil prices.

[Ian Macqueen:]

Okay.

[Randy Neely:]

And we expect some of these drilling costs will be lower just based on the bids that we have been getting, but again, we will see how that plays out as we get the wells done.

[Ian Macqueen:]

Okay, perfect. Last question, which is something perhaps I didn't pick up on before, as your potential additional recovery in the sub-K pool, how much of that would actually be in your 2P reserves now, or do you have an estimate?

[Lloyd Herrick:]

Currently it's all in the 2P reserves right now.

[Ian Macqueen:]

Okay.

[Lloyd Herrick:]

You could see there in as a probable or proven undeveloped.

[Ian Macqueen:]

Okay. Perfect, thanks.

[Lloyd Herrick:]

We have been looking upside to those numbers, but to get drill them and get them producing, you got to go with the third-party estimates.

[Ian Macqueen:]

Perfect. Thanks very much guys.

[Operator:]

Thank you. The next question is from Pavel Molchanov with Raymond James. Please go ahead.

[Luana Siegfried:]

Hi. This is Luana Siegfried in for Pavel. Thank you for the call. I have a couple of questions to you; first, I wanted to ask about the dividend suspension, your tax balance actually increased in 2015, despite a flow of oil prices. So presumably the dividend was supported by balance sheet for quite some time, is that in current condition, but obviously I think management around this is a bit different. So maybe you can clarify what was the thought process for the suspension of the dividend?

[Randy Neely:]

Well, I think we supported the dividend off the balance sheet all through 2015. And a lot of that was due to the receivable money that were coming in, and not receivable money that we were getting paid debt back, and was really from plus $100 oil sales. And we've largely worked our way through that, and now we're looking out in 2016 at a continued lower longer oil price that really doesn't support our development program and our exploration program let alone the dividend. So it just seemed the prudent thing to do, to -- suspended for the time being until we see higher oil prices.

[Luana Siegfried:]

Perfect. And if I may touch on the acquisitions, so you are often looking for [indiscernible] fees, and I would appreciate if you could share with us more on the topic about any specific location that you have been doing negotiations, the type of facilities that you are looking for, and that will be it for me, thank you.

[Ross Clarkson:]

That's a little difficult to answer, because we are looking at a number of jurisdictions, but we, as I mentioned, I mean we've looked at North America recently, a number of jurisdictions in North America, we have looked at onshore Europe, basically looked at the OECD list, I would suggest, and anywhere there is oil and gas that's where we're looking.

[Randy Neely:]

And I think just to add to that; we are clearly continuing on to look for cash flowing opportunities, not explorations. So there would be exploration components to it, but we're looking for existing production and development opportunity, and that's consistent with what we have been saying for a few years.

[Ross Clarkson:]

Yes.

[Luana Siegfried:]

Perfect. Thank you very much.

[Operator:]

Thank you. The next question is from Al Stanton with RBC. Please go ahead.

[Al Stanton:]

Yes. Good morning, guys. A couple of questions, just first of all on the choice of spending; on the one hand I saw the development cash or CapEx would be immediately cost recoverable, so it would look quite attractive, whereas on the exploration side, you haven't got that benefit, and given all the decisions by M&A and acquisitions, you did not mention anything about divestments. So have you looked at spending money on development activity and farming out exploration activity?

[Lloyd Herrick:]

Yes, it's Lloyd here, Al. Couple of things, yes, we have looked at everything, but as far as the cost recovery goes, at the current price levels we are not recovering our costs day-to-day. So we're building cost pools now. So anything we put into those cost pools is just -- it just sits there in the future of waiting for prices to recover. So there is really no acceleration on that. On the exploration side, those are commitments, so to the extent you either drill them or you give the government the money, we much prefer to drill the wells. We are looking at extending them, and yes, we've had conversations around possibly allying off the portion of our interest, but as you can appreciate, it's pretty difficult market to form out exploration opportunities.

[Ross Clarkson:]

And quite frankly on the development side, we'd rather leave the oil in the ground and essentially inventory in it in the ground rather than selling out our assets at this low price. It just doesn't make a lot of sense. So, cutting back on development is essentially restricting your producing assets a bit, and leaving the oil inventory in the ground.

[Al Stanton:]

And then the other question was probably surrounding in terms of the debt repayment is now about 12 months away, I was wondering how much of that takes up of your time and intense, albeit that seem amortizing away at the moment as well. So, where you are on looking at the refinancing?

[Randy Neely:]

Well, yes, on the RBL that's right. It is amortizing. We've actually consciously chosen not to try to renew it at the time, because we don't use it. We are only using it for LCs, and the LCs are going down as we meet our finance commitments on our blocks. On the convertible debenture, I mean the big thing for us is we have got the cash to pay it, and we are going to continue to hope the cash with the idea that we will repay it. I think, refinancing in the current oil environment, well, certainly a few weeks ago it certainly looked pretty bleak, but although the last couple of weeks have been a lot better, and we have seen a lot more financings get done recently, but we will have to see prices recover above $50 for refinancing of that debenture to occur if it was strictly in Egypt.

[Al Stanton:]

All right. And so, just on that last opening then, is the OECD a source of debt finance as well as a source of future production?

[Randy Neely:]

Well, we are looking at it as a source of future production in cash flow, and of course the diversification of our asset base, and a lowering of the oil price that's required to make the company profitable. And so, I think with that, of course would be increased ability to finance.

[Al Stanton:]

Okay. All right, thanks guys.

[Operator:]

Thank you. [Operator Instructions] The next question is from Sean Keller [ph] with FK Holdings Investments. Please go ahead.

[Unidentified Analyst:]

Hi, guys. Thanks for taking the time for my question. I just -- and it was partially addressed on the last question, but I just was wondering, you know, looking out to 2017, what does your liquidity look like at that point when the debentures come through? And just assuming oil at a strip price, do you have the cash there to pay back those debentures, or is there a thought to maybe look to convert that debt to equity?

[Randy Neely:]

Well, I guess the first question to be which strip today or two weeks ago, every day it makes a difference. I mean, for us effectively at the current production rate, every dollar move in the strip provides an extra 2 million in cash flow for us. So it's -- we are pretty sensitive to strip. Repaying with shares is not something we want to do, but if oil prices stay in this range, $30 to even $40, it certainly is a possibility that at least part of the refinancing could be in shares.

[Unidentified Analyst:]

Okay. And part of it, so I guess there is an opportunity to maybe do half cash, half shares or something like that?

[Randy Neely:]

Yes. It's up to us Sean [ph], how we repay it. We could repay it of course in cash, or we could repay it in part of the cash and probably shares, or all shares. Our attention is to repay in cash. I mean, we do have a low Canadian dollar, although it's bounced back a fair amount over the past couple of weeks as well, so we do save on that. The debenture is priced in Canadian dollars.

[Unidentified Analyst:]

Yes. Okay, great. Thanks a lot.

[Operator:]

Thank you. There are no further questions registered at this time. I would like to turn the meeting over to Mr. Clarkson.

[Ross Clarkson:]

Well, thank you for participating in TransGlobe's Q4 conference call, and for the great questions. We will see some reports out on our drilling results as we move through the second quarter. Thank you very much, and good morning everyone.

[Operator:]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.