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Zargon Oil & Gas Ltd. Provides 2019 Second Quarter Results


CALGARY, Alberta, Aug. 14, 2019 (GLOBE NEWSWIRE) — Zargon Oil & Gas Ltd. (“Zargon” or the “Company”).

FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED June 30, 2019)

  • Funds flow from operating activities of $2.17 million compared to $1.23 million recorded in the prior quarter, and $0.58 million reported in the second quarter of 2018. The increase from the prior quarter was primarily due to higher commodity prices, reduced operating expenses and lower interest expenses due to the settlement of the convertible debentures.
  • Second quarter 2019 production averaged 1,790 barrels of oil equivalent per day, a one percent decrease from the preceding quarter production rate of 1,808 barrels of oil equivalent per day and a 15 percent decrease from the second quarter 2018 production rate of 2,118 barrels of oil equivalent per day. The reduction in production volumes from the prior quarter was primarily due to electrical outages, spring blizzards and spring break up. Second quarter oil production averaged 1,539 barrels per day, a two percent decrease from the preceding quarter rate of 1,576 barrels per day.
  • Second quarter 2019 field oil prices averaged $64.51 per barrel, 14 percent higher than the prior quarter price of $56.54 per barrel but one percent lower than the 2018 second quarter price of $64.94 per barrel.
  • Second quarter 2019 field operating netbacks defined as sales (excluding hedges) less royalties and operating/transportation costs were $19.82 per barrel of oil equivalent an increase of 42 percent from the prior quarter field operating netback of $14.00 per barrel of oil equivalent. The corresponding second quarter 2019 field operating cash flow was $3.23 million, a 42 percent improvement from the prior quarter’s $2.28 million.
  • For the second quarter of 2019, field revenues (unhedged) were $56.33 per barrel of oil equivalent ($51.04 per barrel of oil equivalent in Q1 2019), royalties were $7.73 per barrel of oil equivalent ($5.59 per barrel of oil equivalent in Q1 2019) and operating (including transportation) costs were $28.78 per barrel of oil equivalent ($31.45 per barrel of oil equivalent in Q1 2019).
  • Second quarter 2019 capital expenditures were $0.79 million, a $0.04 million increase from the $0.75 million recorded in the prior quarter. The cash constrained reduced program was primarily allocated to oil exploitation programs, well reactivations, and pipeline construction projects. No wells were drilled in the quarter.
  • Second quarter 2019 abandonment and reclamation costs totaled $0.47 million, a $0.25 million increase from the $0.22 million recorded in the prior quarter.
  • At June 30, 2019, the Company’s combined debt net of working capital was $1.41 million, which compared to $2.26 million reported in the prior quarter. The improvement in net debt resulted from the generation of free cash flow of $0.91 million in the second quarter of 2019, compared to $0.26 million and negative $0.85 million recorded in the prior quarter and the second quarter of 2018, respectively.
  • Effective May 30, 2019, the Company consolidated its issued and outstanding common shares (the “Pre-Consolidation Shares”) on the basis of one new common share (the “Post-Consolidation Shares”) for every twenty pre-consolidation shares held (the “Share Consolidation”). As a result of the Share Consolidation, the 459.81 million Pre-Consolidation Shares were consolidated to 22.99 million Post-Consolidation Shares.

The outlook for Zargon is improving in 2019 with the narrowing of the WTI-WCS differentials and the settlement of our $41.94 million principal amount of convertible debentures. For further information regarding Zargon’s properties, opportunities and outlook, please refer to our updated corporate presentation, which is available at www.zargon.ca.

Strategic Alternatives Process Update (1)
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.

 

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 Percent
Change
2019 2018 Percent
Change
Financial Highlights
Income and Investments ($ millions)
Gross petroleum and natural gas sales 9.17 10.84 (15 ) 17.48 20.55 (15 )
Funds flow from operating activities 2.17 0.58 274 3.39 0.27 1156
Cash flows from operating activities 2.79 1.98 41 1.85 2.78 (33 )
Free cash flow 0.91 (0.85 ) 207 1.15 (3.27 ) 135
Net earnings/(loss) (0.57 ) (1.68 ) 66 24.51 (6.02 ) 507
 
Net capital expenditures 0.79 1.19 (34 ) 1.54 2.69 (43 )
Abandonment and reclamation costs 0.47 0.24 96 0.70 0.85 18
   
Per Share, Basic  
Funds flow from operating activities ($/share) 0.09 0.37 (76 ) 0.01 0.18 (11 )
Net earnings/(loss) ($/share) (0.02 ) (1.09 ) 98 (0.20 ) (3.90 ) 129
   
Balance Sheet at Period End ($ millions)  
Property and equipment (D&P)   96.77 125.41 (23 )
Total assets   105.73 135.80 (22 )
Working capital   3.36 0.41 720
Convertible debentures at maturity   41.94 (100 )
Shareholders’ equity   28.62 17.68 62
     
Weighted Average Shares Outstanding for the  Period (millions) – Basic 22.99 1.54 1393 21.69 1.54 1308
Weighted Average Shares Outstanding for the  Period (millions) – Diluted 22.99 1.55 1383 21.69 1.54 1308
Total Common Shares Outstanding at    Period End (millions) 22.99 1.54 1393

Funds flow from operating activities is an additional GAAP measure presented on the consolidated statement of cash flows, it  represents cash flow from operating activities adjusted for asset retirement expenditures and changes in non-cash operating working capital.

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

 

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 Percent
Change
2019 2018 Percent
Change
Operating Highlights            
Average Daily Production    
Oil and liquids (bbl/d) 1,539 1,805 (15 ) 1,557 1,877 (17 )
Natural gas (mmcf/d) 1.51 1.88 (20 ) 1.45 2.37 (39 )
Equivalent (boe/d) 1,790 2,118 (15 ) 1,799 2,272 (21 )
     
Average Selling Price (before the impact of financial risk management contracts)
Oil and liquids ($/bbl) 64.51 64.94 (1 ) 60.50 58.50 3
Natural gas ($/mcf) 1.04 0.99 5 1.63 1.58 3
Netback ($/boe)
Gross petroleum and natural gas sales 56.33 56.23 53.68 49.97 7
Royalties (7.73 ) (8.13 ) 5 (6.66 ) (6.94 ) (4 )
Realized loss on derivatives (8.07 ) 100 (5.85 ) 100
Operating expenses (28.12 ) (26.75 ) 5 (29.46 ) (26.86 ) 10
Transportation expenses (0.66 ) (0.49 ) 35 (0.65 ) (0.52 ) 25
Operating netback 19.82 12.79 55 16.91 9.80 73
     
Wells Drilled, Net
     
Undeveloped Land at Period End (thousand net acres)   33 33

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.



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