CALGARY, Alberta – Zargon Oil & Gas Ltd. (“Zargon” or the “Company”) (TSX:ZAR) has released its 2020 second quarter financial results. Highlights from the second quarter ended Jun. 30, 2020 are provided below:
FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED JUNE 30, 2020)
- The Company may be required to seek formal creditor protection in the very near term. There is material uncertainty surrounding the Company’s ability to continue as a going concern that creates significant doubt as to the ability of the Company to meet its obligations as they come due. Therefore, the Company may be unable to realize it assets and discharge its liabilities in the normal course of business.
- 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. The gain from the sale was $3.42 million.
- Funds flow from operating activities was a negative $1.88 million, compared to a negative $1.24 million recorded in the prior quarter. The decrease from the prior quarter was primarily due to lower production volumes and lower commodity prices.
- Second quarter 2020 production averaged 504 barrels of oil equivalent per day (382 barrels of oil per day and 0.74 million cubic feet of natural gas per day), a 70 percent decrease from the preceding quarter production rate of 1,706 barrels of oil equivalent per day. The reduction in production volumes from the prior quarter was primarily due to the sale of Willison Basin USA property and the shut in of Alberta operated properties in April, 2020 when Zargon shut in all producing Alberta operated properties as realized field oil prices declined to levels significantly below the variable costs of production. In July 2020, Zargon reactivated two Little Bow producers with a combined production of 120 barrels of oil equivalent per day. The timing of the reactivation of Zargon’s remaining Alberta properties will depend on Zargon’s ability to source, through refinancing and restructuring initiatives, sufficient working capital to fund the property restart operations including funding for electricity and other services.
- Second quarter 2020 field oil prices averaged $8.16 per barrel, 77 percent lower than the prior quarter price of $35.31 per barrel. The combination of lower oil prices and oil volumes resulted in a 92 percent reduction in second quarter 2020 revenues to $0.40 million, down from $4.89 million in the prior quarter. The corresponding second quarter 2020 field operating cash flow of a negative $1.57 million, which compares with the prior quarter’s a negative $0.39 million.
- Second quarter 2020 field operating netbacks defined as sales (excluding hedges) less royalties and operating/transportation costs were a negative $34.14 per barrel of oil equivalent a significant decrease from the prior quarter field operating netback of a negative $2.52 per barrel of oil equivalent.
- Second quarter 2020 capital expenditures were $0.20 million, compared to the $0.45 million recorded in the prior quarter. During the 2020 second quarter, Zargon’s capital program was primarily allocated to mineral and surface lease rentals. Consistent with the last few years, Zargon did not drill any of its proven undeveloped locations (Taber and Bellshill Lake) in the quarter.
- At June 30, 2020, the Company’s combined debt net of working capital was $3.85 million, which compared to $4.89 million reported in the prior quarter. The improvement in net debt resulted from the settlement of the debt through the sale of its US subsidiaries.
- Zargon’s second quarter 2020 financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These statements have not been reviewed by the Company’s auditors.
|Three Months Ended June 30, 2020
||Six Months Ended June 30, 2020
|Income and Investments ($ millions)|
|Gross petroleum and natural gas sales||0.40||9.17||(96||)||5.29||17.48||(70||)|
|Funds flow from operating activities||(1.88||)||2.17||(187||)||(3.11||)||3.39||(192||)|
|Cash flows from operating activities||(1.08||)||2.79||(139||)||(1.13||)||1.85||(161||)|
|Free cash flow||(2.32||)||0.91||(355||)||(4.45||)||1.15||(487||)|
|Net capital expenditures||0.20||0.79||(75||)||0.65||1.54||(58||)|
|Abandonment and reclamation costs||0.24||0.47||(48||)||0.69||0.70||(1||)|
|Per Share, Basic|
|Funds flow from operating activities ($/share)||(0.08||)||0.09||(189||)||(0.14||)||0.16||(188||)|
|Free Cash Flow||(0.05||)||0.12||(142||)||(0.05||)||0.09||(156||)|
|Net earnings/(loss) ($/share)||0.03||(0.02||)||250||(1.47||)||(1.13||)||(230||)|
|Balance Sheet at Period End ($ millions)|
|Property and equipment (D&P)||47.34||96.77||(51||)|
|Convertible debentures at maturity||–||–||–|
|Weighted Average Shares Outstanding for the Period (millions) – Basic||22.99||22.99||–||22.99||21.69||6|
|Weighted Average Shares Outstanding for the Period (millions) – Diluted||22.99||22.99||–||22.99||21.69||6|
|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 term debt. The debt was settled through the sale of its US subsidiaries on April 1, 2020.
|Three Months Ended June 30, 2020
||Six Months Ended June 30, 2020
|Average Daily Production|
|Oil and liquids (bbl/d)||382||1,539||(75||)||904||1,557||(42||)|
|Natural gas (mmcf/d)||0.74||1.51||(51||)||1.20||1.45||(17||)|
|Average Selling Price (before the impact of financial risk management contracts)|
|Oil and liquids ($/bbl)||8.16||64.51||(87||)||29.58||60.50||(51||)|
|Natural gas ($/mcf)||1.67||1.04||61||1.90||1.63||17|
|Gross petroleum and natural gas sales||8.61||56.33||(85||)||26.29||53.68||(51||)|
|Wells Drilled, Net||–||–||–||–||–||–|
|Undeveloped Land at Period End (thousand net acres)||25||33||(24||)|
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.