CALGARY, ALBERTA–(Marketwired – Dec. 12, 2016) – Zargon Oil & Gas Ltd. (the “Company” or “Zargon”) (TSX:ZAR) (TSX:ZAR.DB) announces its 2017 capital budget.
With Zargon’s recently announced 2017 oil hedges (November 30), Zargon’s Board of Directors has approved a 2017 capital budget of $7.8 million. This budget is projected to maintain production at stable Q4 2016 guidance levels of 2,500 barrels of oil equivalent per day (82% oil and liquids), and is expected to be fully funded out of 2017 corporate funds flow at oil prices of $52 US per barrel (WTI) or better. The components of the budget include:
- Little Bow Polymer Costs: $2.7 millionLast fall, Zargon’s Little Bow ASP tertiary recovery project was placed on “idle mode” by shutting in higher water cut producers in under-treated areas, which in turn reduced polymer consumption required for the reinjection of the produced water into the reservoir. This strategy will maintain and produce the oil banks that have already been formed in the reservoir while preserving our ability to re-initiate the alkaline surfactant injections in the under treated areas, once higher oil prices and improved financial conditions permit.
- Land retention and other costs: $1.5 millionThese non-discretionary costs are required to maintain Zargon’s asset base.
- Discretionary oil and natural gas exploitation costs: $3.6 millionOver the last 18 months of very low oil and natural gas prices, Zargon has deferred all but the most essential non-ASP capital projects. These deferred projects vary from oil and natural gas property/well reactivations to waterflood modification and enhancement projects that are in Alberta and North Dakota. In aggregate we have identified $6.7 million of these low risk projects. In 2017, Zargon plans to high grade this inventory and execute $3.6 million of the highest return projects.In Alberta, we will initially focus on the Highvale gas plant reactivation and two Highvale Glauconite gas recompletions and a Carrot Creek oil recompletion. In our Little Bow non-ASP property the consolidation of batteries, reactivation of oil producers/injectors and waterflood modifications will be implemented. In North Dakota we will focus on the Truro waterflood reactivation and related modifications along with Mackobee Coulee (Frobisher/Sherwood) and Haas (Alida/Wayne) well recompletions which could ultimately provide material reserve additions.
At the present time this proposed budget does not contemplate the drilling of any of the 11 oil exploitation undeveloped locations assigned in the McDaniel & Associates Consultants Ltd. 2015 year end reserve review. Furthermore, this program does not incorporate the reactivation of Alkaline Surfactant injections at the Little Bow Phase 1 project or further tertiary projects utilizing the existing Little Bow ASP infrastructure, all of which would provide significant upside in future higher oil price environments. These additional projects will be considered as oil prices improve. With current hedges, Zargon estimates that its 2017 corporate funds flow will increase approximately $0.6 million for every $1 US per barrel (WTI) increase in oil price.
Additional information regarding Zargon’s low decline, oil exploitation properties and related opportunities are available on our website at www.zargon.ca.