Horizon Sets the Record Straight on Statements Made by TransGlobe Energy Corporation

• Horizon corrects TransGlobe's statements so that its fellow shareholders can make an informed decision at the upcoming Meeting.
  

• Horizon had expected that TransGlobe would seriously consider and address the legitimate business concerns expressed by its shareholders, however we are disappointed that the Board has instead chosen to use its efforts to label such views as "spurious" and questioning motives unfairly and without basis, accusing us of pursuing selfish "short-term objectives" and "misrepresenting the transaction". 
  

• TransGlobe's failed attempt to discredit Horizon's analysis focused its criticisms on tangential elements but failed to address the primary concerns of Horizon and its fellow shareholders.
  

• Horizon thanks its fellow shareholders for their growing support and repeats its call for all shareholders to VOTE AGAINST the Proposed Transaction with Vaalco AS SOON AS POSSIBLE.
  

PANAMA CITY, Panama, Sept. 19, 2022 (GLOBE NEWSWIRE) -- Horizon Partners ("Horizon"), a privately-owned firm that manages the Horizon Absolute Return Fund Limited ("HARF"), which is a shareholder of TransGlobe Energy Corporation ("TransGlobe" or the "Company"), issued today a public statement responding to the desperate and false statements made by TransGlobe in its September 16, 2022, press release. Horizon repeats its call for all shareholders of TransGlobe to VOTE AGAINST the proposed plan of arrangement pursuant to which Vaalco Energy, Inc. ("Vaalco") would acquire all of the issued and outstanding common shares of TransGlobe in a stock-for-stock business combination transaction (the "Proposed Transaction"). The Proposed Transaction will be considered at a special meeting of the Company currently scheduled to take place on September 29, 2022 (the "Meeting").

Juan Argento, Managing Partner of Horizon, said, "We appreciate the support we are receiving from our fellow TransGlobe shareholders who have conveyed their agreement with our arguments and their intention to VOTE AGAINST the Proposed Transaction. Based on the significant number of inbound calls and words of encouragement we have received, we anticipate many other shareholders, who share in our concerns, will also support us at the Meeting. We understand that TransGlobe is "contractually obligated" to "reaffirm its recommendation" for its misguided decision to enter into the Proposed Transaction with Vaalco but given the strong position that its shareholders have expressed we would hope they would be more responsive to the concerns we have raised and mindful of their duties to act in the best interest of the Company and its shareholders. Instead, the Board decided to double down on its position and attack us personally. Horizon is very disappointed by TransGlobe's clearly desperate attempt to put forward false statements regarding our legitimate concerns with the Proposed Transaction, which severely undervalues the Company, and is not fair to or in the best interests of the Company or its shareholders. Rather than taking these concerns seriously and making an effort to address them, TransGlobe has chosen to attack its own shareholders with baseless accusations."

At the time the Proposed Transaction was announced, Horizon communicated its concerns based on its evaluation of the Proposed Transaction to TransGlobe management and the Chairman of the Board. The response received was that Horizon's concerns would be addressed in future disclosure, including in the management information circular to be issued in connection with the Proposed Transaction. However, none of these concerns were addressed. At the time of the publication of our first press release, we reached out to management and made ourselves available to discuss our views, but management has failed to respond.

Horizon had expected that the Board of Directors would exercise its duties to act in the best interests of the Company and seriously consider and address the legitimate concerns and alternative views expressed by its shareholders, however the Board has instead chosen to use its efforts to label such views as "spurious" and questioning motives unfairly and without basis, accusing us of pursuing selfish "short-term objectives" and "misrepresenting the transaction".   Clearly, our only objective is to maximize shareholder value for ourselves and all of our fellow TransGlobe shareholders.

The following are Horizon's specific responses to TransGlobe:

• False Allegation of Short Termism and Financial Engineering- The Chairman inappropriately suggests that Horizon is imposing "short-termism and financial engineering". While he uses these words, he then fails to provide any explanation of what he means with this allegation. These statements seem to be a poorly conceived tactic intended as baseless name calling and labelling to try to discredit the legitimate and detailed concerns raised by Horizon about the Proposed Transaction to the benefit of all TransGlobe shareholders.  
  
• Having a Strategic Rationale for the Transaction Does not Justify a Poor Deal. Horizon understands that there may be valid strategic reasons for a merger, including achieving a larger and more diversified company that may benefit from operational synergies, cost savings, and a more liquid stock. However, these objectives should not be achieved at the expense of accepting transaction terms that are unattractive to TransGlobe shareholders.
  
• No Explanation for Board Failure to Negotiate an Adjustment Mechanism to the Consideration - The Company could have explained why it failed to address Horizon's concern that TransGlobe did not negotiate an adjustment mechanism to protect TransGlobe shareholders from a decline in the price of Vaalco shares prior to closing. If the Vaalco shares continue to decline in value, shareholders would be forced to accept an even poorer deal. We question how this failure to protect our value is in the best interest of the Company and its shareholders.
  
• USD 67.5 Million Effective Date Adjustment Receivable - TransGlobe indicates that the effective date adjustment receivable is unlikely to result in USD 67.5 million in value for TransGlobe despite the fact that (i) its public disclosure on the topic says otherwise and (ii) it claims in its September 16^th news release that the value of this receivable is included in the purchase price. This inconsistency is just one example, where we believe it is important to set the record straight.   Furthermore, in supporting its allegation, TransGlobe argues that the effective date adjustment will be collected over time and in various forms other than USD cash. However, we would expect that this would have been taken into consideration by the Company when it recognized a value of USD 67.5 million in its balance sheet by discounting the expected nominal amount of the effective date adjustment.
  
• USD 40 Million Modernization Payment - With respect to the USD 40 million modernization payment, as the Company points out in their letter, this will be paid in installments over a four-year period, and we would expect this to come out of the Company's abundant future operating cash flow that has been publicly disclosed by the Company. In our analysis, we assume this liability as part of our value estimate of the core Egypt business (1.0x its NPV10 of USD 226.9 million).
  
• Our Suggested Alternatives, Including the Sale of the Canadian Assets Would Not Destroy Value for the Shareholders Compared to a Transaction with Vaalco Which Most Certainly Will ? Conveniently, the Company focuses on a tangent by pointing out only the relatively minor negative elements of a divestiture of Canada without considering the complete picture which clearly would be net positive.   We have shown with simple arithmetic that, using any reasonable range of assumptions, the sum of the parts of TransGlobe adds up to approximately CAD 9.00 per share¹ which is much higher than the consideration of CAD 4.10 in Vaalco shares that the shareholders will be forced to accept if the Proposed Transaction goes forward. Plus, it is hardly controversial that divesting an asset is a valid, common, and successful strategy to maximize shareholder value. Finally, we note that TransGlobe did not dispute our central point which is that the value of the Canadian assets is approximately USD 85 million to USD 120 million.
  
• Comparison of Reserves - TransGlobe falsely states that Horizon's comparison of the reserves of Vaalco and TransGlobe is flawed. This statement is patently false as Horizon's analysis fully considered Vaalco's reported contingent resources and prospective resources. The problem lies in that even if optimistic assumptions of drilling results are applied, this would not be significant enough for Vaalco to catch up to the value of TransGlobe's reserves, which has an NPV10 of over 3.0x that of Vaalco, and much less to TransGlobe's overall value including its other components. Furthermore, the public markets assign hardly any value to exploration upside.² TransGlobe shareholders should not be forced to assign value to exploration upside by accepting the Proposed Transaction when they can easily gain exposure to exploration upside by investing in a variety of listed companies analogous to Vaalco that are trading at much lower multiples of certified reserves than Vaalco.   
  

In summary, TransGlobe's failed attempt to discredit Horizon's analysis focused its criticisms on tangential elements of the analysis, but failed to address the primary concern of Horizon and the fellow shareholders that have contacted us, namely, that the current terms of the Proposed Transaction severely undervalue TransGlobe given that the Company is in a position to monetize value in the next 12 months that equals or exceeds the USD 231 million consideration offered to TransGlobe shareholders in the Proposed Transaction, while keeping its full stake in its core Egyptian business (which Horizon believes is worth 1.0x the NPV10 of its P1 reserves or USD 226.9 million or CAD 4.02 per share).

Specifically, even if we assume a much lower USD 10 million value for the effective date adjustment, the Company is still in a position to monetize USD 229.8 million to USD 264.8 million or CAD 4.06 to CAD 4.68 per share, as the table below illustrates.

Horizon thanks its fellow shareholders for the tremendous support we have received to date and urges all TransGlobe shareholders who have not done so already to VOTE AGAINST the Proposed Transaction AS SOON AS POSSIBLE. 

Information in Support of Public Broadcast Solicitation:

The following information is provided in accordance with Canadian corporate and securities laws applicable to public broadcast solicitations. Horizon is relying on the exemption under section 9.2(4) of National Instrument 51-102 ? Continuous Disclosure Obligations ("NI 51-102") to make this public broadcast solicitation. This solicitation is being made by Horizon and not by or on behalf of the management of TransGlobe. The registered office address of TransGlobe is 900, 444 - 5th Street SW., Calgary, Alberta T2P 2T8.

Horizon has filed this press release containing the information required by section 9.2(4)(c) of NI 51-102 on TransGlobe's company profile on SEDAR at www.sedar.com.

Horizon may solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, conveyed by way of public broadcast, including through press releases, speeches or publications, and by any other manner permitted under applicable Canadian laws. All costs incurred for the solicitation will be borne by Horizon.

A TransGlobe shareholder who has given a proxy has the power to revoke it. If a TransGlobe shareholder who has given a proxy attends the Meeting at which the proxy is to be voted, such TransGlobe shareholder, may revoke the proxy and vote at the Meeting. In addition to revocation in any other manner permitted by law, a proxy may be revoked by an instrument in writing signed by the TransGlobe shareholder or his or her attorney authorized in writing, or, if the TransGlobe shareholder is a corporation, under its corporate seal and signed by a duly authorized officer or attorney for the corporation, and deposited at the registered office of TransGlobe at any time up to and including the last day (other than Saturdays, Sundays and statutory holidays in the Province of Alberta) preceding the day of the Meeting at which the proxy is to be used, or any adjournments or postponements thereof. If a TransGlobe shareholder uses a 12-digit control number to login to the Meeting online and accepts the terms and conditions, by doing so such TransGlobe shareholder will be revoking any and all previously submitted proxies; however, in such a case, the TransGlobe shareholder will be provided the opportunity to vote by ballot on the matters put forth at the Meeting. If a TransGlobe shareholder DOES NOT wish to revoke all previously submitted proxies, the TransGlobe shareholder should not accept the terms and conditions, in which case the TransGlobe shareholder can only attend the Meeting as a guest.

Horizon Absolute Return Fund Limited, an affiliate of Horizon, is a shareholder of TransGlobe. With the exception of the foregoing, to the knowledge of Horizon, neither Horizon nor any associates or affiliates of Horizon, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in the Proposed Transaction or any other matter to be acted upon at the Meeting.

FOR FURTHER INFORMATION PLEASE CONTACT:

Juan Argento
Horizon Partners
Calle 53E, Urbanización Marbella, MMG Tower, Piso 16, Panamá, República de Panamá
Tel: +1 347 759 6074
E-mail: [email protected]

Juan Pablo Schulman
Horizon Partners
Calle 53E, Urbanización Marbella, MMG Tower, Piso 16, Panamá, República de Panamá
Tel: +54 911 6252 4736
E-mail: [email protected]

Advisors:

Goodmans LLP is acting as legal counsel.

ABOUT HORIZON PARTNERS

Horizon is a privately-owned business with advisory and principal investment activities and with substantial focus on the energy industry. Horizon Capital Management, Inc., part of Horizon, manages Horizon Absolute Return Fund Limited, a British Virgin Islands Approved Fund, that primarily invests in listed international oil and gas companies and is a shareholder of TransGlobe.

Cautionary Statement Regarding Forward Looking Information

All statements, other than statements of historical fact, included in this news release constitute "forward-looking information" as such term is defined in applicable Canadian securities legislation.  Forward-looking information can generally be identified by the use of forward-looking language such as "will", "would", "could", "expect", "intend", "plan", "estimate", "anticipate", "may", "believe" or "continue" (and grammatical variations and the negatives thereof) and include statements concerning Horizon's intentions and strategies regarding the Company, Horizon's views on potential alternatives to monetize value for the Company and its shareholders instead of pursuing the Proposed Transaction (and the potential timeframe for such monetization) and the impact on the financial condition, operation, business, strategies and competitive position of the Company and its future management if the Proposed Transaction is not approved by the shareholders.  Such forward-looking information is based on certain understandings, assumptions, beliefs, opinions and expectations of Horizon, including, without limitation, the Company's future growth potential, results of operations, future cash flows, ability to monetize assets, the future performance and business prospects and opportunities of the Company, the regulatory environment and economic and market conditions that the Company faces and those assumptions noted above in this news release.  Shareholders should not place undue reliance on such forward-looking information, which is not a guarantee that any particular outcome, event, result, performance or other achievement will occur.  Many risks, uncertainties and other factors could cause the actual outcomes, events, results, performance or achievements expressed or implied by such forward-looking information to vary materially from those described herein should any of those risks, uncertainties or other factors materialize.  Such risks, uncertainties and other factors include, without limitation, the impact of legislative, regulatory, competitive and technological changes; the state of the economy; credit and equity markets; availability of credit and other financing; the financial markets in general; the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; and all other risks and uncertainties detailed in the Company's filings with applicable Canadian securities commissions, copies of which are available on SEDAR at www.sedar.com.   Accordingly, readers of this news release are cautioned not to place undue reliance on any forward-looking information contained in this news release.  All forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.  All forward-looking information contained herein is made as of this news release and Horizon undertakes no obligation to publicly update or revise any such forward-looking information, except as required by law.

¹ If we further discount the effective date adjustment receivable from USD 67.5 to USD 10.0 million, the sum of the parts drops to approximately CAD 8.00, as we illustrate below.
² This is evident from reviewing a sample of comparable companies, which tend to cluster around an enterprise value of approximately 1.0x the NPV10 of P1 reserves, regardless of how significant its exploration resources might be. Vaalco is a rare exception to this, as it is trading at approximately 2.7x the NPV10 of its P1 reserves. We believe Vaalco valuation is very high relative to listed companies with similar characteristics including similar exploration upside and hence our view that their stock is an unattractive form of consideration for Transglobe shareholders.
³ Assumes CAD / USD FX rate as of September 12, 2022, of 0.7704.