FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED MARCH 31, 2019)
- On January 11, 2019, 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.
- Funds flow from operating activities of $1.23 million compare to the negative $2.74 million recorded in the prior quarter, and the negative $0.30 million reported in first quarter of 2018. The increase from the prior quarter is primarily due to higher commodity prices due to the narrowing of the WTI-WCS differentials and lower interest expenses due to the settlement of the convertible debentures.
- First quarter 2019 production averaged 1,808 barrels of oil equivalent per day, essentially unchanged from the preceding quarter rate of 1,786 barrels of oil equivalent per day and a 26 percent decrease from the 2018 first quarter rate of 2,427 barrels of oil equivalent per day.
- First quarter 2019 field oil prices averaged $56.54 per barrel, a 78 percent gain from the prior quarter price of $31.74 per barrel and a eight percent gain from the 2018 first quarter price of $52.48 per barrel.
- First quarters 2019 field operating netbacks defined as sales less royalties and operating/transportation costs were $14.00 per barrel of oil equivalent, a significant improvement from the prior quarters operating netback of a negative $3.84 per barrel of oil equivalent. The corresponding first quarters 2019 field operating cash flow was $2.28 million, which compares with the prior quarters negative $0.63 million.
- First quarter 2019 capital expenditures totaled $0.75 million, a $0.07 million increase from the $0.68 million recorded in the prior quarter. The cash constrained reduced program was primarily allocated to well reactivations and pipeline construction projects. No wells were drilled in the quarter.
- First quarter 2019 abandonment and reclamation costs totaled $0.22 million, a $0.63 million decrease from the $0.85 million recorded in the prior quarter.
The outlook for Zargon is improving in 2019 with the narrowing of the WTI-WCS differentials and the settlement of our $41.94 million principal amount of convertible debentures. For further information regarding Zargon’s properties, opportunities and outlook, please refer to our updated corporate presentation, which is available at www.zargon.ca.
Strategic Alternatives Process Update (1)
In 2015 Zargon formed a Special Board Committee (the “Committee”) to examine alternatives available to maximize shareholder value. Macquarie Capital Markets Canada Ltd. (“Macquarie”) is currently engaged as Zargon’s exclusive financial advisor to evaluate strategic alternatives available to Zargon which may include a sale of the Company or a portion of the Company’s assets, a restructuring of the Company’s current capital structure, the addition of capital to further develop the potential of the assets, a merger, a farm-in or joint venture, or other such options as may be determined by the Board of Directors to be in the best interests of the Company and its stakeholders.
|Three Months Ended
|Income and Investments ($ millions)|
|Gross petroleum and natural gas sales||8.31||9.71||(14||)|
|Funds flow from/(used in) operating activities||1.23||(0.30||)||510|
|Cash flows from/(used in) operating activities||(0.93||)||0.80||(216||)|
|Net capital expenditures||0.75||1.50||(50||)|
|Abandonment and reclamation costs||0.22||0.61||(64||)|
|Per Share, Basic|
|Funds flow from/(used in) operating activities ($/share)||–||(0.01||)||(110||)|
|Net earnings/(loss) ($/share)||0.06||(0.14||)||143|
|Balance Sheet at Period End ($ millions)|
|Property and equipment (D&P)||98.60||126.89||(22||)|
|Convertible debentures at maturity||–||41.94||(100||)|
|Weighted Average Shares Outstanding for the Period (millions) – Basic||407.39||30.84||1221|
|Weighted Average Shares Outstanding for the Period (millions) – Diluted||407.39||30.84||1221|
|Total Common Shares Outstanding at Period End (millions)||459.81||30.86||1390|
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
|Average Daily Production|
|Oil and liquids (bbl/d)||1,576||1,949||(19||)|
|Natural gas (mmcf/d)||1.39||2.87||(52||)|
|Average Selling Price (before the impact of financial risk management contracts)|
|Oil and liquids ($/bbl)||56.54||52.48||8|
|Natural gas ($/mcf)||2.28||1.98||15|
|Gross petroleum and natural gas sales||51.04||44.47||15|
|Realized loss on derivatives||–||(3.89||)||100|
|Wells Drilled, Net||–||–||–|
|Undeveloped Land at Period End (thousand net acres)||33||33||–|