(Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long TGL.TO)
This morning Transglobe Energy (TGL.TO, last at C$1.52) reported Q2 2017 results. Corporate production is hanging in around 16,500 boepd, which is well within the range of management guidance for the year. I had to do a double-take when I noticed how cheap TGL has become... with a ~C$140 million enterprise value, the company trades at less than $10,000/flowing boe, which is one of the lowest valuations I've seen in quite some time (TGL has only 72 million shares outstanding and has cash, receivables, and inventories totalling USD$83 million. Long-term debt is ~USD$85 million and payables are ~USD$25 million). In terms of operations, TGL seems to be chugging along just fine, with three development leases/permits pending at NW Gharib (expected to be granted in Q3 2017) and the first appraisal well completed at Boraq-5 in the South Alamein concession.
The Boraq-5 well sounds like it was a bit of a rodeo for Transglobe. Faults and caving caused numerous drilling difficulties as the company searched for Abu Roash channel sands. Eventually the Boraq-5 well found 6 feet of Abu Roash "E" channel sands and 19 feet of Abu Roash "G" formation and was cased as a potential oil well. Drilling challenges in a new area are not uncommon and I'm sure that TGL staff and drillers have already learned a lot about how to target and drill future wells with less difficulty. For now, all eyes will be on the Boraq-2 and Boraq-5 testing program slated for September/October once the work-over/completions rig arrives. Depending on test results, production from South Alamein could be established as soon as late 2017 or early 2018 and, by my math, there is nothing priced into the stock for the South Alamein concession.
The company continues to mature its leads in its 100%-owned NW Sitra and South Ghazalat concessions. Both concessions have the potential to turn up material prospects and should not be overlooked, as they may come into the 2018 drilling program. These represent another totally free look for shareholders in my view.
TGL is holding a conference call today at 9:00 AM Mountain Time (11:00 AM Eastern Time) and is accessible to all interested parties by dialing 416-340-2216 or toll free at 1-800-377-0758. The webcast may be accessed at http://www.gowebcasting.com/8557.
All in all, while the market remains in an oil funk, I will happily remain a TGL shareholder while waiting for that funk to lift. At these prices the TGL risk-reward seems skewed wildly in my favour as I pay only a fraction of the company's 2P reserve value and capture significant free optionality from the company's concessions in the Western Desert.