Zargon Oil & Gas Ltd. Provides 2018 Third Quarter Results

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.

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.

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.