- Oil producer, TransGlobe Energy (TSX:TGL), has been forced to amend its 2020 outlook, after oil prices dramatically decreased earlier this week.
- The company has cut its capital spending budget from C$51 million to $9.6 million to offset losses caused by the price reduction
- TransGlobe is also suspending its first quarter dividend payment until further notice
- Despite the capital reduction, the company believes it has the available facilities to weather 2020’s difficult outlook
- TransGlobe Corp (TGL) is down 15.8 per cent, with shares currently trading for $0.66
Small-tier oil producer, TransGlobe Energy (TSX:TGL), has been forced to amend its 2020 outlook after oil prices tumbled this week.
TransGlobe’s pricing forecast was reliant on oil prices much higher than the current Brent Crude and West Texas Intermediate.
The steep drop comes after Russia and OPEC failed to negotiate oil prices. As a result, Saudi Arabia uncapped production over the weekend and took more than 30 per cent off the benchmark oil price standards.
This caused TransGlobe’s share price to drop by over 20 per cent on Monday morning.
Consequently, the company is cutting its capital spending budget from approximately C$51 million down to below $10 million.
To manage this reduction, the company is suspending its first quarter dividend payment for the foreseeable future.
The board of directors will review this decision on a semi-annual basis to determine when the company will be able to reinstate the dividend.
TransGlobe currently owes $36 million in long term debt and $26.5 million cash on hand.
Despite this, the company believes it has the available facilities to weather 2020’s difficult outlook. TransGlobe stated that market disruptions this large will also produce room for growth.
CEO of TransGlobe, Randy Neely, outlined the company’s previous goals in its original outlook.
“In Egypt, the focus is on growing production in the Eastern Desert while we continue to evaluate the potential of the South Ghazalat acreage.
“In Canada, the focus is on developing South Harmattan where we have made a potentially significant discovery of resources in a new, effectively undrilled area, where we already have a significant footprint,” he said.
However, the new capital budget no longer lists a spending allocation for South Ghazalat, leaving the fate of the site unclear.
The company did announce that it will still progress the South Harmattan project in Canada, which was spudded before the price drop. The company plans to drill the well but not begin production until market conditions improve.
Due to a volatile and unpredictable market, TransGlobe has chosen to not provide a funds flow estimate for its 2020 operations.
TransGlobe Corp (TGL) is down 15.8 per cent, with shares trading for $0.66 at 1:06pm EST.
