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TransGlobe Energy: Turnaround Gem Hiding In Plain Sight

Dec. 05, 2019 11:18 AM ETVAALCO Energy, Inc. (EGY), TGL:CA34 Comments
Franklin Feringa profile picture
Franklin Feringa


  • TransGlobe's business has seen great improvement in terms of free cash flow as well as production.
  • Cash is being used to pay off debt, pay out dividends, and invest in future growth.
  • Despite the turnaround since the crashing oil prices of 2014, the shares are trading at an extremely low valuation.

TransGlobe Energy Corporation (TGA) has successfully turned its business around, yet the shares are priced as if the business is suffering. The fundamentals have seen a tremendous improvement over the past few years with strong cash flows, but its share price has yet to follow this trend. By now the difference between fundamentals and share price is so wide, that investors can expect significant upside.

Company overview

TransGlobe Energy is an oil and gas exploration and production company whose main activities are in Egypt. But towards the end of 2016, it expanded to Canada when management acquired assets of Bellatrix, a company headed for bankruptcy. A total of $59.5 mln was paid for the transaction.

During the fiscal year 2018, 88% of the total revenue was derived from operations in Egypt, while the other 12% was generated in Canada.


Just like any energy-related company, the crashing oil prices in 2014 had a severe adverse effect on TransGlobe Energy’s financial results. Revenue plummeted along with the oil prices.

Source: Seekingalpha.com

In 2015, a year after the start of the price decline of oil, TransGlobe's revenue was only 33% of the year before. This was both due to a 51% decrease in realized oil prices as well as a 26% reduction in sales volumes compared to 2014.

While the revenue was declining, the cost structure was adjusted to lessen the impact on the bottom line.

After the company had survived the declining oil prices, it had to position itself for growth again. The focus was directed towards increasing production volumes. The effect of this was first seen in 2017 when production volumes grew on an annual basis for the first time since 2013.

During 2015 and 2016, the company had difficulty selling all produced barrels. Sales volumes were 85.5% and 92.2% of produced barrels respectively. After

This article was written by

Franklin Feringa profile picture
I am mostly interested in small, micro, and nano-stocks with great balance sheets. I will mostly write about the few stocks that I have in my own portfolio while also generating some additional ideas.

Analyst’s Disclosure: I am/we are long TGA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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