CALGARY, Alberta – Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX:ZAR) has released its 2020 first quarter financial results. Highlights from the first quarter ended Mar. 31, 2020 are provided below:
FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED MARCH 31, 2020)
- Funds flow from operating activities was a negative $1.24 million compared to $1.35 million recorded in the prior quarter. The decrease from the prior quarter is primarily due to significantly lower commodity prices and lower production volumes.
- First quarter 2020 production averaged 1,706 barrels of oil equivalent per day, a two percent decrease from the preceding quarter production rate of 1,746 barrels of oil equivalent per day. The reduction in production volumes from the prior quarter was primarily due to natural production declines, 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. First quarter 2020 production averaged 1,427 barrels of oil per day and 1.67 million cubic feet of natural gas per day.
- First quarter 2020 field oil prices averaged $35.31 per barrel, a 35 percent decrease from the prior quarter’s price of $54.57 per barrel. The combination of lower oil prices and oil volumes resulted in a 38 percent reduction in first quarter 2020 revenues to $4.89 million, down from $7.91 million in the prior quarter. With relatively consistent operating costs and royalty rates, this reduction in revenue carried through to Zargon’s first quarter 2020 field operating cash flow of a negative $0.39 million, which compares with the prior quarters $2.09 million.
- First quarter 2020 field operating netbacks defined as sales less royalties and operating/ transportation costs were a negative $2.52 per barrel of oil equivalent, a significant decrease from the prior quarters operating netback of $13.01 per barrel of oil equivalent.
- At quarter end, Zargon recognized a non-cash impairment loss to property, plant and equipment assets of $33.34 million, primarily due to exceptionally low forecasted future commodity prices.
- The first quarter 2020 deferred tax recovery was $2.92 million compared to $0.06 million recorded in the prior quarter. The increase in the deferred tax recovery from the prior quarter was primarily due to the $8.54 million impairment loss on the Williston Basin USA property.
- First quarter 2020 capital expenditures totaled $0.45 million, a $0.20 million decrease from the $0.65 million recorded in the prior quarter. During the 2020 first quarter, Zargon’s capital program was primarily allocated to oil exploitation programs (waterfloods) and Little Bow Polymer costs. Consistent with the last few years, Zargon did not drill any of its proven undeveloped locations (Taber, Bellshill Lake and North Dakota) in the quarter, as Zargon conserved its cash to retire debt and retire abandonment liabilities.
- Zargon has entered into contracts with its suppliers to access the Alberta Government’s Site Rehabilitation Program. The availability of funds under the program is uncertain.
- On April 2, 2020, Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) announced that it had entered into an agreement to settle its $3.05 million (USD) term debt through the sale of its US subsidiaries for nominal proceeds and the release of the Company from its obligations under the loan agreement.
- Subsequent to the quarter end, Zargon has shut in all producing Alberta operated properties as realized field oil prices in April declined to levels significantly below the variable costs of production. The timing of the reactivation of these properties will be dependent on future WCS (Western Canadian Select) oil price trends, Zargon’s participation in the Alberta government’s Site Rehabilitation Program, and Zargon’s efforts to improve its financial situation through refinancing and restructuring initiatives.
- Zargon’s first quarter 2020 financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These statements have not been reviewed by the Company’s auditors.
|Three Months Ended Mar 31,|
|Income and Investments ($ millions)|
|Gross petroleum and natural gas sales||4.89||8.31||(41||)|
|Funds flow from operating activities||(1.24||)||1.23||(201||)|
|Cash flows from operating activities||(0.05||)||(0.93||)||95|
|Free cash flow||(2.13||)||0.26||(919||)|
|Net capital expenditures||0.45||0.75||(40||)|
|Abandonment and reclamation costs||0.44||0.22||101|
|Per Share, Basic|
|Funds flow from operating activities ($/share)||(0.05||)||0.06||(183||)|
|Net earnings/(loss) ($/share)||(1.50||)||1.23||(222||)|
|Balance Sheet at Period End ($ millions)|
|Property and equipment (D&P)||60.18||98.60||(39||)|
|Weighted Average Shares Outstanding for the Period (millions) – Basic||22.99||20.37||13|
|Weighted Average Shares Outstanding for the Period (millions) – Diluted||22.99||20.37||13|
|Total Common Shares Outstanding at Period End (millions)||22.99||22.99||–|
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 Mar 31,|
|Average Daily Production|
|Oil and liquids (bbl/d)||1,427||1,576||(9||)|
|Natural gas (mmcf/d)||1.67||1.39||20|
|Average Selling Price (before the impact of financial
risk management contracts)
|Oil and liquids ($/bbl)||35.31||56.54||(38||)|
|Natural gas ($/mcf)||2.01||2.28||(12||)|
|Gross petroleum and natural gas sales||31.51||51.04||(38||)|
|Wells Drilled, Net||–||–||–|
|Undeveloped Land at Period End (thousand net acres)||29||33||(12||)|
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.