SOURCE: TransAtlantic Petroleum Ltd.

TransAtlantic Petroleum Ltd.

November 09, 2011 21:02 ET

TransAtlantic Petroleum Ltd. Announces Third Quarter 2011 Earnings and Operations Update

HAMILTON, BERMUDA--(Marketwire - Nov 9, 2011) - TransAtlantic Petroleum Ltd. (TSX: TNP) (NYSE Amex: TAT) is pleased to announce results for the quarter ended September 30, 2011 and provide an operations update.

Selected 3Q11 Highlights

  • Daily average sales in the third quarter of 2011 increased 74% over the same period in 2010 and 25% over the second quarter of 2011;
  • Third quarter 2011 adjusted EBITDAX from continuing operations totaled $20.3 million (EBITDAX is a non-GAAP measure and is defined and reconciled later in this press release);
  • Year-end 2011 production target reiterated at 7,000-7,500 boe per day;
  • Executed a farm out agreement with LNG Energy covering a portion of TransAtlantic's leasehold in Bulgaria and commenced drilling our first test of the Etropole shale;
  • TransAtlantic announced its intent to sell its oilfield services business, the engagement of PPHB as its financial advisor, and the extension of the maturity date of the Dalea credit agreement.
3Q11 Operating Summary
For the three months ended
Sept. 30, 2011 Sept. 30, 2010 June 30, 2011
Sales
Crude Oil (Mbbls): 222 178 219
Natural Gas (MMcf): 1,426 515 862
Total Sales (Mboe): 460 264 362
Total Sales (Mboe/d): 4,996 2,864 3,985
Realized Commodity Pricing
Crude Oil ($/bbl – Unhedged): $ 104.43 $ 74.17 $ 109.28
Crude Oil ($/bbl – Hedged): $ 98.56 $ 74.17 $ 103.32
Natural Gas ($/Mcf – Unhedged): $ 6.53 $ 7.58 $ 7.34
Natural Gas ($/Mcf – Hedged): $ 6.53 $ 7.58 $ 7.34

Third Quarter 2011 Results
For the three months ended September 30, 2011, total net sales increased to approximately 460 thousand barrels of oil equivalent ("Mboe"), compared to sales of approximately 264 Mboe for the same period last year and approximately 362 Mboe in the second quarter of 2011. During the three months ended September 30, 2011, the Company sold an average of 4,996 net barrels of oil equivalents ("boe") per day and sold approximately 222 thousand net barrels ("bbls") of crude oil at an average rate of approximately 2,413 net bbls per day and approximately 1,426 net million cubic feet ("MMcf') of natural gas at an average rate of approximately 15.5 net MMcf per day.

For the third quarter 2011, our average realized price was $104.43 per bbl of oil and $6.53 per thousand cubic feet ("Mcf") of natural gas, compared to average price received of $74.17 per bbl and $7.58 per Mcf in the quarter ended September 30, 2010 and $109.28 per bbl and $7.34 per Mcf in the quarter ended June 30, 2011.

Total oil and natural gas revenues increased to $31.6 million for the three months ended September 30, 2011 compared to $18.3 million realized in the same period in 2010 and $30.8 million for the three months ended June 30, 2011. Oilfield services revenue for the quarter ended September 30, 2011 increased to $12.9 million ($28.6 million before intercompany eliminations), compared to $5.5 million ($11.4 million before intercompany eliminations) for the quarter ended September 30, 2010 and $3.9 million ($22.1 million before intercompany eliminations) in the second quarter of 2011.

Due to the announced intent to sell TransAtlantic's oilfield services business, the segment is now treated as discontinued operations in our financial statements. However, until a transaction is completed, our financial statements will continue to reflect the elimination of intercompany transactions.

Net loss for the three months ended September 30, 2011 was $0.3 million, or $0.00 per share (basic and diluted), compared to a net loss of $11.8 million, or $0.04 per share (basic and diluted), for the three months ended September 30, 2010. Reported net income includes the impact of a $7.8 million unrealized gain on commodity derivative contracts, a $4.0 million loss from discontinued operations and a foreign exchange gain of $0.2 million.

Adjusted EBITDAX for the three months ended September 30, 2011 was $20.3 million compared to $7.4 million for the three months ended September 30, 2010 and $17.7 million for the quarter ended June 30, 2011. Adjusted EBITDAX is a non-GAAP financial measure and is defined and reconciled later in this press release.

Operational Review
During the third quarter of 2011, TransAtlantic and its subsidiaries spudded 16 gross wells, completed 13 gross wells, executed 3 fracs, and performed 33 workovers. The Company's recent 7-day average net production rate is 5,373 net boe per day, including approximately 17.1 MMcf per day of natural gas and approximately 2,520 bbls per day of oil.

Thrace Basin
In the Thrace Basin of northwestern Turkey, the Company's net sales of natural gas for the third quarter of 2011 averaged approximately 15.2 MMcf per day, compared to an average of approximately 5.1 MMcf per day in the third quarter 2010 and 9.1 MMcf per day during the three months ended June 30, 2011. The increased sales relative to the second quarter of 2011 reflects the contribution of TBNG for a full quarter, natural gas sales via the wholesale natural gas license granted to Petrogas in July 2011, and the contribution of activity completed during the quarter.

Pilot Frac Program. In early October, TransAtlantic made encouraging progress in the Company's pilot frac program. The re-entry and frac of the BTD-2 well, an existing low-rate producer, generated peak production of 2.8 MMcf/d. Additionally, the Kayi-15 well is producing 0.6 MMcf/d while still cleaning up after stimulation. The Company believes the improved results are a result of revised criterion for prospect selection along with improved fluid selection used as part of the frac design. The existing inventory of 44 re-entry wellbore frac candidates have been prioritized based upon these two successes. Six are scheduled to be completed in the fourth quarter following a round of fracture stimulations that are currently underway at the Selmo oil field.

Deep Test. On October 1, 2011 the Company spud the side-track of the Pancarkoy-1 well as a re-entry of an existing wellbore to test the Mezardere tight gas sands at approximately 10,170 feet (3,080 meters), representing our first test of the deep, unconventional natural gas opportunities in the Thrace Basin. TransAtlantic has identified an approximately 1,000-acre structure with 800 meters of stacked sands that previously tested gas during mid-century basement oil exploration. If successful, this re-entry will support offset locations to fully develop the structure in 2012 and will confirm the deep, unconventional natural gas opportunities on a number of similar structures in the Thrace Basin.

Shallow Drilling. After our operations team performed a review of our shallow drilling program we have resumed activity. We currently expect to tie-in production from the Yenibag-1 and Kumdere-1 wells in late December 2011 at combined initial gross production rates of approximately 5.0 MMcf per day.

Alpullu Pipeline. Construction is nearing completion on the pipeline connecting the Alpullu gas field to the TBNG gathering system after final government approval. Final pigging and hydrostatic testing is about to begin with gas expected to flow to sales by year-end 2011.

Southeastern Turkey
Selmo. Net sales at the Selmo oil field in the third quarter of 2011 averaged approximately 2,244 bbls per day, compared to approximately 1,725 bbls per day in the third quarter of 2010 and 2,268 bbls per day during the second quarter of 2011. During the third quarter the Company completed five wells at Selmo and began drilling four additional wells. We completed the first multi-well drilling pad and drilled three development wells from the pad. These wells encountered tight pay and are currently being fracture stimulated.

Arpatepe. In June 2011, the Company and Aladdin Middle East, Ltd. commenced drilling two wells on the Arpatepe license. The Arpatepe-4 development well is currently completing and the Kocahuyuk-1 exploration well, which tested a down dip fault block, encountered the target Bedinan sands formation and was plugged and abandoned as non-commercial. TransAtlantic and Aladdin intend to maintain one drilling rig each at Arpatepe through the end of 2011.

Molla. In early September, TransAtlantic announced the Goksu-1 well as a new field discovery in the Mardin group at approximately 5,500 feet (approximately 1,650 meters). In addition to the Mardin test, the Goksu-1 well also flared gas from the Dadas shale, consistent with core data which was rich in hydrocarbons. The Goksu-1 well was completed open-hole with a light acid skin stimulation and had an initial flow rate of 340 barrels of oil per day with a 20% water cut on restricted choke. After an extended test period evaluating water breakthrough resulting from mechanical problems, the Goksu-1 well was recently placed on pump and is producing at a stabilized rate of approximately 85 bbls of oil per day. The Company plans to drill an appraisal well during the fourth quarter of 2011.

Central Turkey
In late October 2011, TransAtlantic entered into an agreement with a major international oil company to explore Turkey's Sivas Basin, where TransAtlantic holds licenses covering approximately 1.6 million gross and net acres. The agreement is subject to finalization of definitive agreements and approval from the government of Turkey regarding the planned exploration program, including the extension of the deadlines for our Sivas Basin license drilling obligations to December 2013.

In an effort to increase the pace of activity, share exploration risk, and reduce the Company's share of the capital commitments necessary to carry forward the exploration of our extensive acreage position, TransAtlantic is actively seeking partners in a number of its prospects in Turkey, Bulgaria and Romania. FirstEnergy Capital is acting as the Company's exclusive advisor in this effort.

Bulgaria
In late September, TransAtlantic announced a farm-out agreement with LNG Energy covering the southern portion of the Company's A-Lovech exploration permit in Bulgaria. Under the terms of the agreement, LNG will fund up to $7.5 million to drill an approximately 10,500 foot exploration well targeting the Etropole formation. The first well under the agreement, the Peshtene R-11, commenced drilling on September 27, 2011 and is drilling ahead at over 8,000 feet.

On October 27, 2011 TransAtlantic spudded the Deventci-R2 well, a conventional offset well to the Deventci-R1 discovery well. The Deventci-R2 will drill through and test the Etropole shale on its way to the deeper targeted formation.

Outlook
TransAtlantic continues to expect to exit 2011 producing between 7,000 and 7,500 boe equivalents per day. During the fourth quarter, the Company anticipates capital expenditures of approximately $18.0 million which will continue to reflect the cash cost to the Company after intercompany eliminations. During the fourth quarter, TransAtlantic plans to drill 20 gross wells comprised of nine wells in southeast Turkey, nine wells in the Thrace Basin, and two wells in Bulgaria. Additionally, the Company expects to conduct 11 frac jobs, six shallow re-entries and the deep Pancarkoy-1 well re-entry frac.

Intent to Sell Oilfield Services Business
As previously announced, on September 30, 2011 the Company and the Company's special committee entered into an engagement letter with Parks Paton Hoepfl & Brown, LLC ("PPHB"), under which PPHB is acting as the exclusive financial advisor to the Company and the special committee in connection with the sale, transfer or other disposition of Viking International and Viking Geophysical. The Company intends to complete the marketing of its oilfield services business by December 2011 and expects to consummate the sale during the first quarter of 2012.

In connection with the intended sale of the Company's oilfield services business, Dalea Partners, LP, an affiliate of Mr. Mitchell, agreed to extend the maturity date of its credit agreement with the Company from December 31, 2011 to the earlier of March 31, 2012 or the sale of Viking International and Viking Geophysical.

Borrowing Base Redetermination
TransAtlantic recently completed its semi-annual borrowing base redetermination under its amended and restated credit agreement with Standard Bank and BNP Paribas. The Company's borrowing base was reduced to $81.4 million from $95.0 million after incorporating the Company's mid-year internal reserve report, revised production expectations, and updated capital expenditure plans.

At September 30, 2011, exclusive of assets held for sale, the Company had unrestricted cash and cash equivalents of $22.1 million, $81.1 million in short-term debt, and $78.0 million in long-term debt.

Derivative Profile
As of November 1, 2011, TransAtlantic had outstanding contracts with respect to our future oil production as set forth in the table below:

Weighted Weighted Weighted
Type Period Quantity (bbl/d) Average
Floor ($/bbl)
Average
Floor ($/bbl)
Additional Call ($/bbl)
Collar November 1, 2011 to December 31, 2011 1,060 $64.39 $101.32 NM
Collar January 1, 2012 to December 31, 2012 960 $64.69 $106.98 NM
Collar January 1, 2013 to December 31, 2013 400 $75.00 $125.50 NM
Collar January 1, 2014 to December 31, 2014 380 $75.00 $124.25 NM
3-way collar November 1, 2011 to December 31, 2011 640 $79.38 $114.38 $137.16
3-way collar January 1, 2012 to December 31, 2012 240 $70.00 $100.00 $129.50
3-way collar January 1, 2012 to March 31, 2012 350 $85.00 $118.88 $138.13
3-way collar April 1, 2012 to June 30, 2012 350 $85.00 $116.25 $137.38
3-way collar July 1, 2012 to December 31, 2012 205 $85.00 $97.13 $162.13
3-way collar January 1, 2013 to December 31, 2013 831 $85.00 $97.13 $162.13
3-way collar January 1, 2014 to December 31, 2014 726 $85.00 $97.13 $162.13
3-way collar January 1, 2015 to December 31, 2015 1,016 $85.00 $91.88 $151.88

Conference Call
The Company will host a conference call to discuss this release on Thursday, November 10, 2011 at 10:00 a.m. Eastern, 9:00 a.m. Central. Investors who would like to participate in the call should dial 877-878-2762, or 678-809-1005 for international calls, approximately 10 minutes prior to the scheduled start time, and ask for the TransAtlantic conference call. The conference ID is 22924205. A replay will be available until 11:59 p.m. Eastern on November 24, 2011. The number for the replay is 855-859-2056, or 404-537-3406 for international calls, and the conference ID is 22924205.

An enhanced webcast of the conference call and replay will be available through the Company's website. To access the conference call and replay, click on "Investors," select "Events," and click on "Webcast" found below the event listing. The webcast requires Microsoft Windows Media Player or RealOne Player. If you experience problems listening to the broadcast, please contact Shareholder.com via phone at 800-990-6397 or email at ClientSupport@Shareholder.com.

TransAtlantic Petroleum Ltd.
Consolidated Statements of Operations
(unaudited)
For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
U.S. dollars and shares in thousands, except per share amounts 2011 2010 2011 2010
Total revenues $ 32,038 $ 18,696 $ 92,716 $ 45,868
Costs and expenses:
Production 3,269 5,347 11,527 14,242
Exploration, abandonment and impairment 3,851 - 15,525 7,459
Seismic and other exploration 2,818 3,735 6,816 9,304
Revaluation of contingent consideration - - 1,250 -
General and administrative 8,483 6,016 26,887 17,744
Depreciation, depletion and amortization 12,205 3,363 25,312 7,083
Accretion of asset retirement obligation 341 69 893 174
Total costs and expenses 30,967 18,530 88,210 56,006
Operating income (loss) 1,071 166 4,506 (10,138 )
Total other income (expense) 3,830 (4,437 ) (11,981 ) (2,056 )
Income (loss) from continuing operations before income taxes 4,901 (4,271 ) (7,475 ) (12,194 )
Net income (loss) from continuing operations 3,657 (4,464 ) (10,046 ) (14,272 )
Net loss from discontinued operations (3,985 ) (7,310 ) (31,252 ) (25,276 )
Net loss (328 ) (11,774 ) (41,298 ) (39,548 )
Other comprehensive (loss) income (44,700 ) 22,120 (54,927 ) 14,659
Comprehensive (loss) income (45,028 ) 10,346 (96,225 ) (24,889 )
Basic and diluted net income (loss) per common share:
From continuing operations $ 0.01 $ (0.01 ) $ (0.03 ) $ (0.05 )
From discontinued operations $ (0.01 ) $ (0.02 ) $ (0.09 ) $ (0.08 )
Basic and diluted weighted average number of shares outstanding 365,472 305,564 352,682 304,520

TransAtlantic Petroleum Ltd.
Summary Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
U.S. dollars in thousands Sept. 30, 2011 Sept. 30, 2010
Net cash provided by (used in) operating activities from continuing operations $ 35,390 $ (16,509 )
Net cash used in investing activities from continuing operations (52,718 ) (141,228 )
Net cash provided by (used in) financing activities from continuing operations 18,607 185,637
Net cash used in discontinued operations (12,062 ) (63,561 )
Effect of exchange rate changes on cash and cash equivalents (1,761 ) 1,795
Net decrease in cash and cash equivalents $ (12,544 ) $ (33,866 )

TransAtlantic Petroleum Ltd.
Summary Consolidated Balance Sheets
(unaudited)
As of
U.S. dollars in thousands Sept. 30, 2011 December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents 22,132 34,676
Accounts receivable 48,397 33,186
Prepaid and other current assets 15,996 6,376
Deferred income taxes 2,568 991
Assets held for sale 129,421 -
Total current assets 218,514 75,229
Property and equipment, net 278,998 368,846
Other 14,509 29,893
Total assets 512,021 473,968
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 24,576 16,811
Short term debt 81,130 106,673
Accrued liabilities and other 20,198 10,329
Derivative liabilities 2,221 1,612
Liabilities held for sale 19,929 -
Total current liabilities 148,054 135,425
Total liabilities 264,143 197,911
Total stockholders' equity 247,878 276,057
Total liabilities and stockholders' equity 512,021 473,968

Reconciliation of Net Income to Adjusted EBITDAX
For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
U.S. dollars in thousands 2011 2010 2011 2010
Net income (loss) from continuing operations $ 3,657 $ (4,464 ) $ (10,046 ) $ (14,272 )
Adjustments:
Interest and other, net 2,872 2,671 9,695 3,387
Income tax expense 1,244 193 2,571 2,078
Exploration, abandonment, and impairment 3,851 - 15,525 7,459
Seismic and other exploration 2,480 3,249 4,929 5,911
Foreign exchange gain (242 ) (1,266 ) (411 ) (726 )
Share-based compensation 389 574 1,346 1,463
Derivative (gain) loss (6,460 ) 3,032 2,697 (605 )
Accretion of asset retirement obligation 341 69 893 174
Depreciation, depletion, and amortization 12,205 3,363 25,312 7,083
Revaluation of contingent consideration - - 1,250 -
EBITDAX from continuing operations 20,337 7,421 53,761 11,952

EBITDAX is a non-GAAP financial measure that represents earnings from continuing operations before income taxes, interest, depreciation, depletion, amortization, impairment, abandonment, and exploration expense.

The Company believes EBITDAX assists management and investors in comparing the Company's performance and ability to fund capital expenditures and working capital requirements on a consistent basis without regard to depreciation, depletion and amortization, impairment of natural gas and oil properties and exploration expenses, which can vary significantly from period to period. In addition, management uses EBITDAX as a financial measure to evaluate the Company's operating performance. EBITDAX is also widely used by investors and rating agencies.

EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income, income from operations, or cash flow provided by operating activities prepared in accordance with GAAP. Information regarding income taxes, interest, depreciation, depletion, amortization, impairment, abandonment, and exploration expense is unavailable on a forward-looking basis. Net income, income from operations, or cash flow provided by operating activities may vary materially from EBITDAX. Investors should carefully consider the specific items included in the computation of EBITDAX. The Company has disclosed EBITDAX to permit a comparative analysis of its operating performance and debt servicing ability relative to other companies.

About TransAtlantic
TransAtlantic Petroleum Ltd. is an international oil and natural gas company engaged in the acquisition, development, exploration and production of oil and natural gas. The Company holds interests in developed and undeveloped oil and gas properties in Turkey, Bulgaria, Morocco and Romania.

(NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN.)

Forward-Looking Statements
This news release contains statements regarding the update of the Company's website, the Company's year-end 2011 production rate, the recompletion of wellbores, the drilling of exploration, appraisal and development wells, the completion of pipelines, the marketing and sale of the Company's oilfield services business, the approval of Turkish government authorities regarding license drilling obligations, as well as other expectations, plans, goals, objectives, assumptions or information about future events, conditions, results of operations or performance that may constitute forward-looking statements or information under applicable securities legislation. Such forward-looking statements or information are based on a number of assumptions, which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, the ability of the Company to continue to develop and exploit attractive foreign initiatives.

Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties include but are not limited to the continuing ability of the Company to operate effectively internationally, reliance on current oil and gas laws, rules and regulations, volatility of oil and gas prices, fluctuations in currency and interest rates, imprecision of resource estimates, the results of exploration, development and drilling, imprecision in estimates of future production capacity, changes in environmental and other regulations or the interpretation of such regulations, the ability to obtain necessary regulatory approvals, weather and general economic and business conditions.

The forward-looking statements or information contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Note on boe
Barrels of oil equivalent, or boe, is derived by the Company by converting natural gas to oil in the ratio of six thousand cubic feet ("Mcf") of natural gas to one barrel ("bbl") of oil. A boe conversion ratio of 6 Mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. boe may be misleading, particularly if used in isolation.

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