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Zargon Oil & Gas Ltd. Provides 2018 Fourth Quarter and Full Year Financial Results


CALGARY, Alberta, March 14, 2019 (GLOBE NEWSWIRE) — Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX:ZAR) has released its 2018 fourth quarter and full year financial results. Highlights from the fourth quarter and year ended Dec. 31, 2018 are provided below:

HIGHLIGHTS FROM THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2018

  • For calendar 2018, funds flow was a negative $0.54 million (a negative $0.02 per basic share) compared to funds flow from operating activities of $5.99 million ($0.20 per basic share) recorded in the prior year.
  • Oil and liquids production averaged 1,751 barrels of oil and liquids per day in 2018, an 11 percent decrease from the preceding year. Natural gas production averaged 1.91 million cubic feet per day in 2018, a 43 percent decrease from 2017. 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. Total 2018 production averaged 2,069 barrels of oil equivalent per day, an 18 percent decrease from the prior year.
  • Zargon’s 2018 net loss was $35.37 million, which compares to a net loss of $9.31 million in 2017 and a net loss of $20.18 million in 2016. The net earnings/loss track the funds flow from operating activities for the respective periods modified by non-cash charges, which in 2018 were primarily related to an unrealized gain on derivatives, depletion and depreciation expense, accretion expense, and impairment losses. On a per diluted share basis, the 2018 net loss was $1.15 compared to a net loss of $0.30 in 2017 and a net loss of $0.66 in 2016.
  • 2018 net capital expenditures for the year totalled $4.30 million. These expenditures consisted of $4.67 million of exploitation, development and facility expenditures, $0.40 million of net property dispositions, and $0.03 million of administrative assets. The $4.67 million of exploitation, development and facility programs include $2.17 million of chemical costs for the Alkaline Surfactant Polymer (“ASP”) Little Bow project. During the year, Zargon drilled nil net wells.
  • 2018 abandonment and reclamation costs totaled $1.94 million, a $0.17 million decrease from the $2.11 million recorded in the prior year.
  • On November 2, 2018, Zargon entered into a financing agreement for $3.50 million (USD) term debt. The loan is secured by all U.S. assets of Zargon. The loan bears interest at 11% and principal repayments commence on July 1, 2019 at $0.05 million (USD) per month and on October 1, 2019 principal repayments will be $0.08 million (USD) per month until maturity at April 1, 2020 when the balance of the principal plus an original issue discount of $0.15 million (USD) is payable.
  • On January 11, 2019, subsequent to year end, Zargon announced the completion of a transaction to settle its $41.94 million principal amount of outstanding 8% Convertible Debentures due December 31, 2019 in exchange for common shares of Zargon. Immediately before the transaction, 30,932,912 common shares were issued and outstanding. Following the completion of the transaction, 459,811,236 common shares were issued and outstanding. Following closing, the Company has reduced its overall debt by $41.94 million and its annual interest burden by $3.36 million, resulting in a simplified capital structure with only $3.50 million (USD) of term debt outstanding.
  Three Months Ended 
December 31,
Year Ended
December 31,
2018 2017 Percent Change 2018 2017 Percent Change
Financial Highlights        
Income and Investments ($ millions)        
Gross petroleum and natural gas sales 4.77 10.31 (54 ) 35.49 38.68 (8 )
Funds flow from operating activities (2.74 ) 1.59 (272 ) (0.54 ) 5.99 (109 )
Cash flows from operating activities (2.41 ) 0.29 (903 ) 1.22 2.48 (51 )
Net loss (28.71 ) (3.55 ) (709 ) (35.37 ) (9.31 ) (280 )
 
Field capital and administrative asset expenditures 0.66 2.41 (73 ) 4.70 8.65 (46 )
Net property acquisitions/(dispositions) 0.02 0.04 (50 ) (0.40 ) 0.21 (290 )
Net capital expenditures/(dispositions) 0.68 2.45 (72 ) 4.30 8.86 (51 )
Abandonment and reclamation costs 0.85 0.87 (2 ) 1.94 2.11 (8 )
 
Per Share, Basic
Funds flow from operating activities ($/share) (0.09 ) 0.05 (280 ) (0.02 ) 0.20 (110 )
Net loss ($/share) (0.93 ) (0.12 ) (675 ) (1.15 ) (0.30 ) (283 )
 
Balance Sheet at Period End ($ millions)
Property and equipment (D&P) 100.65 128.91 (22 )
Exploration and evaluation assets (E&E) 1.74 (100 )
Total assets 108.41 140.55 (23 )
Working capital 1.75 3.53 (50 )
Convertible debentures at maturity 41.94 41.94
Shareholders’ equity (11.34 ) 22.72 (150 )
 
Weighted Average Shares Outstanding for the Period (millions) – Basic 30.90 30.77 30.88 30.73
Weighted Average Shares Outstanding for the Period (millions) – Diluted 30.90 30.77 30.88 30.73
Total Common Shares Outstanding at Period End(millions) 30.90 30.80

Funds flow from operating activities is an additional GAAP term that represents net earnings/loss except for non-cash items.

Working capital excludes derivative assets/liabilities and short term debt.

  Three Months Ended 
December 31,
Year Ended
December 31,
2018 2017 Percent Change 2018 2017 Percent Change
Operating Highlights        
Average Daily Production  
Oil and liquids (bbl/d) 1,575 1,924 (18 ) 1,751 1,974 (11 )
Natural gas (mmcf/d) 1.27 2.95 (57 ) 1.91 3.34 (43 )
Equivalent (boe/d) 1,786 2,416 (26 ) 2,069 2,531 (18 )
     
Average Selling Price (before the impact of financial risk management contracts)
Oil and liquids ($/bbl) 31.74 55.83 (43 ) 53.96 50.30 7
Natural gas ($/mcf) 1.42 1.57 (10 ) 1.43 1.99 (28 )
 
Netback ($/boe)
Gross petroleum and natural gas sales 28.99 46.37 (37 ) 46.99 41.86 12
Royalties (4.35 ) (5.37 ) (19 ) (6.76 ) (4.80 ) 41
Realized gain/(loss) on derivatives (2.74 ) 100 (3.19 ) (0.41 ) (678 )
Operating expenses (27.87 ) (22.23 ) 25 (27.00 ) (21.30 ) 27
Transportation expenses (0.61 ) (0.42 ) 45 (0.57 ) (0.49 ) 16
Operating netback (3.84 ) 15.61 (125 ) 9.47 14.86 (36 )
   
Wells Drilled, Net
   
Undeveloped Land at Period End (thousand net acres) 33 32 3

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.

For further information regarding Zargon’s properties, reserves and net asset values, please refer to the Company’s corporate presentation, which is available at www.zargon.ca.

Strategic Alternatives Process

In 2015 Zargon formed a Special Board Committee (the “Committee”) to examine alternatives available to maximize shareholder value. Macquarie Capital Markets Canada Ltd. (“Macquarie”) is currently engaged as Zargon’s exclusive financial advisor to evaluate strategic alternatives available to Zargon which may include a sale of the Company or a portion of the Company’s assets, a restructuring of the Company’s current capital structure, the addition of capital to further develop the potential of the assets, a merger, a farm-in or joint venture, or other such options as may be determined by the Board of Directors to be in the best interests of the Company and its stakeholders.



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