TransGlobe Energy Corp. (TGA) is a Middle East-focused oil and gas explorer with an impressive production profile and a financially prudent business model. Benefiting from the recent rise in the price of Brent oil, shares of this Zacks #1 Rank (Strong Buy) have been on the upswing since late June. With several big time catalysts on the horizon to drive earnings growth, TransGlobe Energy looks like a solid aggressive play with a potential for further upside.
Strong Production Growth Prospects
TransGlobe Energy provided an update on its third quarter production and operations on October 11, where it claimed a current run rate of around 20,000 barrels per day (Bbl/d). This is a significant milestone for the company and keeps it on track to achieve the targeted production rate of 40,000 Bbl/d in five years.
Total oil and gas production during the third quarter of 2012 averaged 18,145 Bbl/d, up from 16,978 Bbl/d in the previous quarter. TransGlobe Energy maintained its full-year 2012 production guidance at 17,000-18,600 Bbl/d.
In an important development, the company announced that volumes from the Safwa field in East Ghazalat - that kicked off on September 9 to mark TransGlobe Energy's first production from Egypt's Western Desert - ramped up to 550 Bbl/d within a month from the initial 250 Bbl/d.
TransGlobe Energy has embarked upon high-impact exploration programs in Western Desert's South Alamein (Boraq discovery) and the newly acquired South Mariut blocks. A positive drilling outcome could materially add to the company's reserves and long-term production.
Results from the Egyptian oil and gas licensing bid last year - for 15 blocks in the Gulf of Suez - are expected to be announced shortly. A successful award outcome will significantly expand TransGlobe Energy's acreage position in the region.
Earnings Set to Move Up Sharply
Based on the company's proven track record with low-risk, high-impact Egyptian assets, analysts are predicting strong earnings growth for TransGlobe Energy over the next couple of years. The 2012 Zacks Consensus Estimate of $1.28 is up 7.6% in 60 days and represents growth of 20% over 2011. The Zacks Consensus Estimate for next year is up 4.3% in that time to $1.69, corresponding with 32% growth.
Shares of TransGlobe Energy have gone up steadily during the past four months, but remain cheap as earnings estimates also increased. In addition to trading around 9.0 times forward estimates (substantially under the peer group average of 24.2), the company sports a trailing 12-month return on equity (:ROE) of 23.3% - against its peer group average of a negative 1.7%. This speaks to TransGlobe Energy's efficient management that has consistently maintained a solid balance sheet with low leverage.
Market Performance & Technicals
The chart below shows a secular positive price movement since late June, barring some minor pullbacks. In the process, shares of TransGlobe Energy have also outperformed the 50 and 200-day moving averages. During the past three months, the company has delivered a return of around 30%, versus just 6% for the S&P 500 benchmark. With the expectation for consistent growth in production and earnings, TransGlobe Energy looks poised to keep the winning streak going.
With an impressive production/reserve base and upside potential from extensive exploration opportunities, TransGlobe Energy remains well positioned to maintain a strong earnings growth trajectory in the near- to medium-term.
TransGlobe Energy is engaged in the exploration and development of crude oil and natural gas resources in the Middle East/North Africa region, with core operations in Egypt. The company, based in Calgary, Alberta, is a smaller explorer with a market cap of around $850 million.
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