CALGARY, Alberta, Nov. 13, 2018 (GLOBE NEWSWIRE) -- Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX SYMBOLS: ZAR; ZAR.DB.A).
FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED SEPTEMBER 30, 2018)
- Funds flow from operating activities of $1.93 million compared to $0.58 million recorded in the prior quarter, and $1.76 million reported in the third quarter of 2017. The increase from the prior quarter is primarily due to the expiration of our hedges on June 30, 2018, which had been responsible for a $1.56 million net realized derivative loss in the second quarter.
- WTI-WCS differentials widened towards the end of the quarter, which had a negative impact on Zargon’s realized field prices for our Alberta properties. For the 2018 third quarter, the WTI-WCS differential averaged $29.07 Canadian dollar per barrel, an increase of 17 percent compared to the prior quarter WTI-WCS differential of $24.82 Canadian dollar per barrel and 133 percent compared to $12.45 Canadian dollar per barrel in the third quarter of 2017.
- Third quarter 2018 production averaged 1,953 barrels of oil equivalent per day, an eight percent decline from the preceding quarter rate of 2,118 barrels of oil equivalent per day and a 26 percent decline from the third quarter 2017 production rate of 2,628 barrels of oil equivalent per day. The reduction in production volumes was primarily due to the suspension of discretionary oil exploitation capital programs, the deferral of routine maintenance operations due to cash constraints and the shut-in of uneconomic natural gas properties.
- Third quarter 2018 field operating netbacks defined as sales (excluding hedges) less royalties and operating/transportation costs were $20.89 per barrel of oil equivalent, essentially unchanged from the prior quarter field operating netback of $20.86 per barrel of oil equivalent. The corresponding third quarter 2018 field operating cash flow was $3.75 million, a seven percent decrease from the prior quarter’s $4.02 million.
- For the third quarter of 2018, field revenues (unhedged) were $56.61 per barrel of oil equivalent per day ($56.23 per barrel of oil equivalent per day in Q2 2018), royalties were $8.57 per barrel of oil equivalent per day ($8.13 per barrel of oil equivalent per day in Q2 2018) and operating (including transportation) costs were $27.15 per barrel of oil equivalent per day ($27.24 per barrel of oil equivalent per day in Q2 2018).
- Third quarter 2018 capital expenditures were $0.93 million, a 22 percent decrease from the prior quarter’s $1.19 million and a 47 percent decrease from the 2017 third quarter expenditures of $1.77 million. No wells were drilled in the quarter.
- Third quarter 2018 abandonment and reclamation costs totaled $0.24 million, unchanged from the $0.24 million recorded in the prior quarter, and 56 percent lower than the $0.55 million of costs in the 2017 third quarter.
- Zargon has included a going concern disclosure in its unaudited financial statements for the three and nine months ended September 30, 2018 and the accompanying MD&A.
- On November 2, 2018, subsequent to quarter end, Zargon announced that it had entered into a financing agreement for $3.50 million (US) term debt. These funds will be utilized for low risk oil exploitation capital projects and general corporate purposes.
Strategic Alternatives Process Update
Zargon’s Board of Directors recognizes that Zargon is a suboptimal size to operate as a public oil and gas company in Canada, and continues to explore alternatives to allow Zargon to continue as part of a larger, better capitalized entity, to reorganize the Company, or to sell the Company. The Board also recognizes, that Zargon’s long-life, low-decline oil exploitation assets have significant upside potential in a period of prolonged higher oil prices. In addition to this option value to higher oil prices, Zargon brings a TSX listing and more than $155 million of non-capital losses that could have significant value in a more favourable Canadian energy investment climate.
In an effort to realize these unrecognized values, Zargon has previously initiated a strategic alternatives process and continues to seek outcomes that will maximize the value for the Company and its stakeholders.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2018 | 2017 | Percent Change | 2018 | 2017 | Percent Change | |||||||
| Financial Highlights | ||||||||||||
| Income and Investments ($ millions) | ||||||||||||
| Gross petroleum and natural gas sales | 10.17 | 9.28 | 10 | 30.72 | 28.37 | 8 | ||||||
| Funds flow from operating activities | 1.93 | 1.76 | 10 | 2.21 | 4.40 | (50 | ) | |||||
| Cash flows from operating activities | 0.85 | 0.25 | 240 | 3.63 | 2.19 | 66 | ||||||
| Net loss | (0.64 | ) | (3.51 | ) | 82 | (6.66 | ) | (5.76 | ) | (16 | ) | |
| Field capital and administrative asset expenditures | 0.94 | 1.77 | (47 | ) | 4.04 | 6.24 | (35 | ) | ||||
| Net property acquisitions/(dispositions) | (0.01 | ) | – | – | (0.42 | ) | 0.17 | (347 | ) | |||
| Net capital expenditures | 0.93 | 1.77 | (47 | ) | 3.62 | 6.41 | (44 | ) | ||||
| Per Share, Basic | ||||||||||||
| Funds flow from operating activities ($/share) | 0.06 | 0.06 | – | 0.07 | 0.14 | (50 | ) | |||||
| Net loss ($/share) | (0.02 | ) | (0.11 | ) | 82 | (0.22 | ) | (0.19 | ) | (16 | ) | |
| Balance Sheet at Period End ($ millions) | ||||||||||||
| Property and equipment (D&P) | 123.39 | 131.46 | (6 | ) | ||||||||
| Exploration and evaluation assets (E&E) | 1.81 | 1.99 | (9 | ) | ||||||||
| Total assets | 132.96 | 144.76 | (8 | ) | ||||||||
| Net debt | 40.78 | 36.70 | 11 | |||||||||
| Convertible debentures at maturity | 41.94 | 41.94 | – | |||||||||
| Shareholders’ equity | 16.93 | 26.19 | (35 | ) | ||||||||
| Weighted Average Shares Outstanding for the Period (millions) – Basic | 30.90 | 30.75 | 1 | 30.87 | 30.71 | 1 | ||||||
| Weighted Average Shares Outstanding for the Period (millions) – Diluted | 30.90 | 30.75 | 1 | 30.88 | 30.71 | 1 | ||||||
| Total Common Shares Outstanding at Period End (millions) | 30.90 | 30.75 | 1 | |||||||||
Funds flow from operating activities is an additional GAAP term that represents net earnings/loss except for non-cash items.
Net debt is a non-GAAP measure that represents bank debt (if any) plus the convertible debenture of $41.94 million or $57.50 million (prior to March 31, 2017) and any working capital excluding unrealized derivative assets/liabilities.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2018 | 2017 | Percent Change | 2018 | 2017 | Percent Change | |||||||
| Operating Highlights | ||||||||||||
| Average Daily Production | ||||||||||||
| Oil and liquids (bbl/d) | 1,680 | 2,037 | (18 | ) | 1,810 | 1,991 | (9 | ) | ||||
| Natural gas (mmcf/d) | 1.64 | 3.55 | (54 | ) | 2.12 | 3.47 | (39 | ) | ||||
| Equivalent (boe/d) | 1,953 | 2,628 | (26 | ) | 2,164 | 2,569 | (16 | ) | ||||
| Average Selling Price (before the impact of financial risk management contracts) | ||||||||||||
| Oil and liquids ($/bbl) | 64.83 | 47.17 | 37 | 60.48 | 48.50 | 25 | ||||||
| Natural gas ($/mcf) | 1.00 | 1.34 | (25 | ) | 1.43 | 2.11 | (32 | ) | ||||
| Netback ($/boe) | ||||||||||||
| Gross petroleum and natural gas sales | 56.61 | 38.36 | 48 | 52.00 | 40.45 | 29 | ||||||
| Royalties | (8.57 | ) | (4.69 | ) | 83 | (7.43 | ) | (4.62 | ) | 61 | ||
| Realized gain/(loss) on derivatives | – | 0.95 | (100 | ) | (4.07 | ) | 0.33 | (1333 | ) | |||
| Operating expenses | (26.50 | ) | (19.65 | ) | 35 | (26.76 | ) | (21.02 | ) | 27 | ||
| Transportation expenses | (0.65 | ) | (0.52 | ) | 25 | (0.56 | ) | (0.51 | ) | 10 | ||
| Operating netback | 20.89 | 14.45 | 45 | 13.18 | 14.63 | (10 | ) | |||||
| Wells Drilled, Net | – | – | – | – | – | – | ||||||
| Undeveloped Land at Period End (thousand net acres) | 33 | 36 | (8 | ) | ||||||||
The calculation of barrels of oil equivalent (“boe”) is based on the conversion ratio that six thousand cubic feet of natural gas is equivalent to one barrel of oil.
Forward-Looking Statements
This press release offers our assessment of Zargon’s future plans and operations as at November 13, 2018, and contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “should”, “plan”, “intend”, “believe” and similar expressions (including the negatives thereof) are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: our expectations for the WTI-WCS differential; our expectations for the use of funds from our US term debt; and our strategic alternatives process under the heading “Strategic Alternatives Process Update”. In addition, all statements relating to reserves, including ASP reserves, in this press release are deemed to be forward-looking as they involve an implied assessment, based on certain assumptions and estimates, that the reserves described, can be properly produced in the future.
The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: those relating to results of operations and financial condition; general economic conditions; industry conditions; changes in regulatory and taxation regimes; volatility of commodity prices; escalation of operating and capital costs; currency fluctuations; the availability of services; imprecision of reserve estimates; geological, technical, drilling and processing problems; environmental risks; weather; the lack of availability of qualified personnel or management; stock market volatility; the ability to access sufficient capital from internal and external sources; and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which is available on www.zargon.ca and on www.sedar.com. Forward-looking statements are provided to allow investors to have a greater understanding of our business.
You are cautioned that the assumptions used in the preparation of such information and statements, including, among other things: future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; the availability of adequate and acceptable debt and equity financing and funds from operations to fund our planned expenditures; and our ability to add production and reserves through our development and acquisition activities, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur, or if any of them do, what benefits we will derive from them. The forward-looking information and statements contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Additional GAAP and Non-GAAP Financial Measures
Zargon uses the following terms for measurement within this press release that do not have a standardized prescribed meaning under Canadian generally accepted accounting principles (“GAAP”) and these measurements may not be comparable with the calculation of similar measurements of other entities.
The terms “funds flow from operating activities” and “operating netback per boe” in this press release are not recognized measures under GAAP. Management of Zargon believes that in addition to net earnings and cash flows from operating activities as defined by GAAP, these terms are useful supplemental measures to evaluate operating performance and assess leverage. Users are cautioned; however, that these measures should not be construed as an alternative to net earnings or cash flows from operating activities determined in accordance with GAAP as an indication of Zargon’s performance.
Zargon considers funds flow from operating activities to be an important measure of Zargon’s ability to generate the funds necessary to finance capital expenditures and repay debt. All references to funds flow from operating activities throughout this press release are based on cash provided by operating activities before the change in non-cash working capital and asset retirement expenditures since Zargon believes the timing of collection, payment or incurrence of these items involves a high degree of discretion and, as such, may not be useful for evaluating Zargon’s operating performance. Zargon’s method of calculating funds flow from operating activities may differ from that of other companies and, accordingly, may not be comparable to measures used by other companies. Funds flow from operating activities per basic share is calculated using the same weighted average basic shares outstanding as is used in calculating earnings per basic share. See Zargon’s Management’s Discussion and Analysis (“MD&A”) as filed on www.zargon.ca and on www.sedar.com for the periods ended September 30, 2018 and 2017 for a discussion of cash flows from operating activities and funds flow from operating activities.
51-101 Advisory
In conformity with National Instrument 51-101, Standards for Disclosure of Oil and Gas Activities (“NI 51-101”), natural gas volumes have been converted to barrels of oil equivalent (“boe”) using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted to a thousand cubic feet equivalent (“mcfe”) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and mcfes may be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value.
Filings
Zargon has filed with Canadian securities regulatory authorities its unaudited financial statements for the three and nine months ended September 30, 2018 and the accompanying MD&A. These filings are available on www.zargon.ca and under Zargon’s SEDAR profile on www.sedar.com.
About Zargon
Zargon is a Calgary-based oil and natural gas company working in the Western Canadian and Williston sedimentary basins and is focused on oil exploitation projects (water floods and tertiary ASP) that profitably increase oil production and recovery factors from existing oil reservoirs.
In order to learn more about Zargon, we encourage you to visit Zargon's website at www.zargon.ca where you will find a current shareholder presentation, financial reports and historical news releases.
For further information, please contact:
C.H. Hansen
President and Chief Executive Officer
Zargon Oil & Gas Ltd.
Telephone: 403-264-9992
E-mail: zargon@zargon.ca
Website: www.zargon.ca