CALGARY, ALBERTA–(Marketwired – March 10, 2015) – Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX:ZAR)(TSX:ZAR.DB) –
HIGHLIGHTS FROM THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2014
- For calendar 2014, funds flow from operating activities of $50.67 million ($1.68 per basic share) was 13 percent lower than the $58.48 million ($1.95 per basic share) recorded in the prior year.
- Oil and liquids production averaged 4,190 barrels of oil and liquids per day in 2014, a 14 percent decrease from the preceding year as production additions from the 2014 drilling and exploitation activities were more than offset by property dispositions and natural production declines. Natural gas production averaged 11.58 million cubic feet per day in 2014, a 26 percent decrease from 2013, primarily due to property dispositions. Total 2014 production averaged 6,120 barrels of oil equivalent per day, an 18 percent decrease from the prior year.
- Zargon declared cash dividends totalling $0.72 per common share during 2014 for a total of $21.70 million. These cash dividends were equivalent to a payout ratio of 44 percent of funds flow from operating activities. As previously reported, Zargon has set the dividend at $0.03 per common share per month starting with the January 2015 dividend.
- Net capital expenditures for the year totalled $26.27 million; consisting of $59.84 million of exploitation, development and facility programs and $0.13 million of administrative assets which was offset by $33.70 million of net property dispositions. The $59.84 million of exploitation, development and facility programs include $21.79 million of Alkaline Surfactant Polymer (“ASP”) project costs. The ASP costs included $10.23 million of construction and exploitation costs and $11.56 million of chemical costs. During the year, Zargon drilled 18.0 net wells yielding 17.0 net oil wells and 1.0 net injection well.
- Zargon’s December 31, 2014 debt, net of working capital (excluding unrealized derivative assets/liabilities) and using the full future face value of the convertible debenture of $57.50 million, of $113.43 million, was approximately 2.24 times 2014 funds flow from operating activities, and was down two percent from the 2013 year end net debt of $116.24 million. At December 31, 2014, Zargon had approximately $85 million of unutilized credit facilities available.
|Three Months Ended
|Income and Investments ($ millions)|
|Gross petroleum and natural gas sales||27.35||35.84||(24||)||145.89||158.65||(8||)|
|Funds flow from operating activities||12.63||12.15||4||50.67||58.48||(13||)|
|Cash flows from operating activities||13.15||13.56||(3||)||50.40||57.00||(12||)|
|Cash dividends (net of Dividend Reinvestment Plan)||5.43||5.42||–||21.70||20.35||7|
|Field capital and administrative asset expenditures||13.71||24.27||(44||)||59.97||76.19||(21||)|
|Net property and corporate dispositions||(22.38||)||(18.68||)||(20||)||(33.70||)||(34.45||)||2|
|Net capital expenditures/(dispositions)||(8.67||)||5.59||(255||)||26.27||41.74||(37||)|
|Per Share, Basic|
|Funds flow from operating activities ($/share)||0.42||0.40||5||1.68||1.95||(14||)|
|Net earnings/(loss) ($/share)||0.26||(0.16||)||263||0.20||(0.20||)||200|
|Cash Dividends ($/common share)||0.18||0.18||–||0.72||0.72||–|
|Balance Sheet at Period End ($ millions)|
|Property and equipment (D&P)||337.45||408.72||(17||)|
|Exploration and evaluation assets (E&E)||6.61||13.33||(50||)|
|Working capital deficiency||13.16||18.77||(30||)|
|Long term bank debt||42.77||39.97||7|
|Convertible debentures at maturity||57.50||57.50||–|
|Weighted Average Shares Outstanding for the Period (millions) – Basic||30.18||30.09||–||30.14||30.02||–|
|Weighted Average Shares Outstanding for the Period (millions) – Diluted||30.70||30.09||2||30.68||30.02||2|
|Total Common Shares Outstanding at Period End (millions)||30.18||30.09||–|
|Funds flow from operating activities is an additional GAAP term that represents net earnings/loss and asset retirement expenditures except for non-cash items.|
|Working capital deficiency excludes derivative assets/liabilities.|
|Three Months Ended
|Average Daily Production|
|Oil and liquids (bbl/d)||4,150||4,625||(10||)||4,190||4,870||(14||)|
|Natural gas (mmcf/d)||6.43||15.90||(60||)||11.58||15.59||(26||)|
|Average Selling Price (before the impact of financial risk management contracts)|
|Oil and liquids ($/bbl)||66.96||73.40||(9||)||83.35||79.88||4|
|Natural gas ($/mcf)||3.03||3.15||(4||)||4.36||2.93||49|
|Gross petroleum and natural gas sales||56.93||53.55||6||65.31||58.20||12|
|Realized gain/(loss) on derivatives||11.47||(0.22||)||5,314||(1.15||)||(0.16||)||(619||)|
|Wells Drilled, Net||4.8||8.5||(44||)||18.0||16.6||8|
|Undeveloped Land at Period End (thousand net acres)||90||230||(61||)|
|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.|
Message to Shareholders
Zargon Oil & Gas Ltd. has released financial and operating results for the fourth quarter of 2014 that have demonstrated significant progress in the Company’s drive to become a long term sustainable, dividend-paying energy producer. The quarter was highlighted by a successful property disposition program and by initial oil production responses from the Company’s Little Bow ASP tertiary oil recovery project in Southern Alberta.
Zargon’s sustainability model entails the balancing of cash inflows and outflows, the maintenance of a stable dividend and the eventual generation of meaningful free cash flow per share growth. Zargon believes that our long-life and low-decline conventional oil exploitation properties in combination with the growing volumes from our Little Bow ASP tertiary oil project are well suited for these sustainability dividend-paying objectives. Despite a promising long term outlook, the sharp oil price decline in recent months has resulted in substantially reduced corporate cash flows and has materially affected our business. Consequently, Zargon’s focus for 2015 will be to:
- Preserve financial flexibility. Maintain or reduce debt levels.
- Efficiently/effectively operate the Little Bow ASP project; maintain chemical injections and optimize phase 1 production. Optimize phase 2 timing and scope to conserve 2015 capital.
- Maximize cash flows by minimizing all costs. Reduce G&A and operating costs. When reduced conventional capital programs are justified, deliver efficient and effective capital programs that are consistent with our long term oil exploitation objectives.
ASP and Operational Update and Production/Capital Guidance
Zargon Oil & Gas Ltd. has provided Little Bow ASP tertiary oil recovery project updates, operational updates and 2015 production/capital guidance in our January 19, 2015 and February 19, 2015 press releases and our updated presentation, which are available on our website at www.zargon.ca. Zargon continues to be encouraged by the ASP project’s early production data that shows improving oil cuts throughout the project and our analysis continues to point to a 12 percent or better incremental reservoir oil recovery. Despite these encouraging trends, the ASP production ramp up volumes have been slower than anticipated due to a combination of ASP plant retrofit/maintenance issues, wellbore pumping upgrades required to pump the more viscous higher oil cut inflows and reservoir conformance issues in specific areas requiring injector well interventions (three completed to date). We are systematically addressing these matters and expect to report on our progress in a mid-April update that will also update our corporate 2015 production and capital guidance.
This press release offers our assessment of Zargon’s future plans and operations as at March 10, 2015, 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 the following: operational forecasts and plans and results therefrom under the heading “Message to Shareholders”; our plans with respect to our Little Bow ASP project and the results therefrom referred to under the heading “Message to Shareholders” and “ASP and Operational Update and Production/Capital Guidance”; and all matters, including guidance as to our production and capital under the heading “ASP and Operational Update and Production/Capital Guidance”.
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, pay dividends 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, 2014 and 2013 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 financial statements for the year ended December 31, 2014 and the accompanying MD&A. These filings are available on www.zargon.ca and under Zargon’s SEDAR profile on www.sedar.com.
Based in Calgary, Alberta, Zargon’s securities trade on the Toronto Stock Exchange and there are currently approximately 30.245 million common shares outstanding.
Zargon Oil & Gas Ltd. is a Calgary based oil and natural gas company working in the Western Canadian and Williston sedimentary basins that has delivered a long history of returns and dividends (distributions). Zargon’s business is focused on oil exploitation projects 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.
Zargon Oil & Gas Ltd.
President and Chief Executive Officer