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.
Forward-Looking Statements
This press release offers our assessment of Zargon’s future plans and operations as at March 14, 2019, 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 December 31, 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 financial statements for the year ended
December 31, 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
