CALGARY, Alberta, June 02, 2020 (GLOBE NEWSWIRE) — Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX:ZAR) has released its 2020 first quarter financial results. Highlights from the first quarter ended Mar. 31, 2020 are provided below:
FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED MARCH 31, 2020)
- Funds flow from operating activities was a negative $1.24 million compared to $1.35 million recorded in the prior quarter. The decrease from the prior quarter is primarily due to significantly lower commodity prices and lower production volumes.
- First quarter 2020 production averaged 1,706 barrels of oil equivalent per day, a two percent decrease from the preceding quarter production rate of 1,746 barrels of oil equivalent per day. The reduction in production volumes from the prior quarter was primarily due to natural production declines, 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. First quarter 2020 production averaged 1,427 barrels of oil per day and 1.67 million cubic feet of natural gas per day.
- First quarter 2020 field oil prices averaged $35.31 per barrel, a 35 percent decrease from the prior quarter’s price of $54.57 per barrel. The combination of lower oil prices and oil volumes resulted in a 38 percent reduction in first quarter 2020 revenues to $4.89 million, down from $7.91 million in the prior quarter. With relatively consistent operating costs and royalty rates, this reduction in revenue carried through to Zargon’s first quarter 2020 field operating cash flow of a negative $0.39 million, which compares with the prior quarters $2.09 million.
- First quarter 2020 field operating netbacks defined as sales less royalties and operating/ transportation costs were a negative $2.52 per barrel of oil equivalent, a significant decrease from the prior quarters operating netback of $13.01 per barrel of oil equivalent.
- At quarter end, Zargon recognized a non-cash impairment loss to property, plant and equipment assets of $33.34 million, primarily due to exceptionally low forecasted future commodity prices.
- The first quarter 2020 deferred tax recovery was $2.92 million compared to $0.06 million recorded in the prior quarter. The increase in the deferred tax recovery from the prior quarter was primarily due to the $8.54 million impairment loss on the Williston Basin USA property.
- First quarter 2020 capital expenditures totaled $0.45 million, a $0.20 million decrease from the $0.65 million recorded in the prior quarter. During the 2020 first quarter, Zargon’s capital program was primarily allocated to oil exploitation programs (waterfloods) and Little Bow Polymer costs. Consistent with the last few years, Zargon did not drill any of its proven undeveloped locations (Taber, Bellshill Lake and North Dakota) in the quarter, as Zargon conserved its cash to retire debt and retire abandonment liabilities.
- Zargon has entered into contracts with its suppliers to access the Alberta Government’s Site Rehabilitation Program. The availability of funds under the program is uncertain.
- On April 2, 2020, Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) announced that it had entered into an agreement to settle its $3.05 million (USD) term debt through the sale of its US subsidiaries for nominal proceeds and the release of the Company from its obligations under the loan agreement.
- Subsequent to the quarter end, Zargon has shut in all producing Alberta operated properties as realized field oil prices in April declined to levels significantly below the variable costs of production. The timing of the reactivation of these properties will be dependent on future WCS (Western Canadian Select) oil price trends, Zargon’s participation in the Alberta government’s Site Rehabilitation Program, and Zargon’s efforts to improve its financial situation through refinancing and restructuring initiatives.
- Zargon’s first quarter 2020 financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These statements have not been reviewed by the Company’s auditors.
|Three Months Ended Mar 31,|
|Income and Investments ($ millions)|
|Gross petroleum and natural gas sales||4.89||8.31||(41||)|
|Funds flow from operating activities||(1.24||)||1.23||(201||)|
|Cash flows from operating activities||(0.05||)||(0.93||)||95|
|Free cash flow||(2.13||)||0.26||(919||)|
|Net capital expenditures||0.45||0.75||(40||)|
|Abandonment and reclamation costs||0.44||0.22||101|
|Per Share, Basic|
|Funds flow from operating activities ($/share)||(0.05||)||0.06||(183||)|
|Net earnings/(loss) ($/share)||(1.50||)||1.23||(222||)|
|Balance Sheet at Period End ($ millions)|
|Property and equipment (D&P)||60.18||98.60||(39||)|
|Weighted Average Shares Outstanding for the Period (millions) – Basic||22.99||20.37||13|
|Weighted Average Shares Outstanding for the Period (millions) – Diluted||22.99||20.37||13|
|Total Common Shares Outstanding at Period End (millions)||22.99||22.99||–|
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 Mar 31,|
|Average Daily Production|
|Oil and liquids (bbl/d)||1,427||1,576||(9||)|
|Natural gas (mmcf/d)||1.67||1.39||20|
|Average Selling Price (before the impact of financial
risk management contracts)
|Oil and liquids ($/bbl)||35.31||56.54||(38||)|
|Natural gas ($/mcf)||2.01||2.28||(12||)|
|Gross petroleum and natural gas sales||31.51||51.04||(38||)|
|Wells Drilled, Net||–||–||–|
|Undeveloped Land at Period End (thousand net acres)||29||33||(12||)|
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.
This press release offers our assessment of Zargon’s future plans and operations as at June 2, 2020, 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 our strategic alternatives process under the heading “Strategic Alternatives Process”. 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 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 March 31, 2020 and 2019 for a discussion of cash flows from operating activities and funds flow from operating activities.
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.
Zargon has filed with Canadian securities regulatory authorities its unaudited financial statements for the three months ended March 31, 2020 and the accompanying MD&A. These filings are available on www.zargon.ca and under Zargon’s SEDAR profile on www.sedar.com.
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:
President and Chief Executive Officer
Zargon Oil & Gas Ltd.