Quarterly / Earnings Reports | Second Quarter (2Q) Update

Zargon Reports Q2 2019 Results Amidst Strategic Alternatives Process

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   |    Wednesday,August 14,2019

Zargon Oil & Gas Ltd. detailed its Q2 2019 results.

Highlights:

• 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 millionreported 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.

Strategic Alternatives Update

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.