Welcome!

News Feed Item

Zargon Oil & Gas Ltd. Provides 2014 First Quarter Financial Results

CALGARY, ALBERTA -- (Marketwired) -- 05/14/14 -- Zargon Oil & Gas Ltd. ("Zargon" or the "Company") (TSX: ZAR)(TSX: ZAR.DB)

FINANCIAL AND OPERATING HIGHLIGHTS (THREE MONTHS ENDED MARCH 31, 2014)


--  Funds flow from operating activities of $15.3 million were 26 percent
    higher than the $12.1 million recorded in the prior quarter, and 10
    percent higher than the $13.9 million reported in first quarter of 2013.
    Funds flow from operating activities for the 2014 first quarter included
    reductions of $2.3 million of realized hedge losses and $0.7 million of
    asset retirement expenses.

--  Reflecting the prior quarter's dispositions, first quarter 2014
    production averaged 4,320 barrels of oil and liquids per day, a seven
    percent decrease from the preceding quarter and first quarter 2014
    natural gas production averaged 14.1 million cubic feet per day, a 12
    percent decrease from the preceding quarter. Total production averaged
    6,662 barrels of oil equivalent per day, an eight percent decrease from
    the preceding quarter. During the quarter, oil and liquids production
    represented 65 percent of total production based on a 6:1 equivalent
    basis.

--  Monthly cash dividends of $0.06 per common share were declared in the
    first quarter of 2014 for a total of $5.4 million. These cash dividends
    were equivalent to a payout ratio of 35 percent of funds flow from
    operating activities.

--  First quarter 2014 exploration and development capital expenditures
    (excluding property acquisitions and dispositions) were $16.9 million
    and included $7.5 million of expenditures related to the Little Bow ASP
    phase 1 enhanced oil recovery project. In the quarter, Zargon drilled
    7.0 gross wells (3.7 net wells) that resulted in 3.7 net oil wells.

--  Zargon's March 31, 2014 debt, net of working capital (excluding
    unrealized derivative assets/liabilities) and using the full future face
    value of the convertible debenture of $57.5 million, was $121.7 million
    and is approximately 2.0 times annualized 2014 first quarter funds flow
    from operating activities. At March 31, 2014, Zargon had $100 million of
    available credit facilities remaining on its $165 million borrowing
    base.



                                               Three Months Ended March 31,
----------------------------------------------------------------------------
                                                                    Percent
                                                   2014      2013    Change
----------------------------------------------------------------------------
Financial Highlights
Income and Investments ($ millions)
  Gross petroleum and natural gas sales           40.26     37.08         9
  Funds flow from operating activities            15.30     13.90        10
  Cash flows from operating activities            14.86     12.46        19
  Cash dividends (net of Dividend Reinvestment
   Plan)                                           5.42      4.75        14
  Net earnings                                     0.17      0.23       (26)

  Field capital and administrative asset
   expenditures                                   16.94     19.28       (12)
  Net property and corporate dispositions         (1.46)    (3.09)       53
  Net capital expenditures                        15.48     16.19        (4)

Per Share, Basic
  Funds flow from operating activities
   ($/share)                                       0.51      0.46        11
  Net earnings ($/share)                           0.01      0.01         -

Cash Dividends ($/common share)                    0.18      0.18         -

Balance Sheet at Period End ($ millions)
  Property and equipment (D&P)                   414.85    399.39         4
  Exploration and evaluation assets (E&E)         13.29     19.22       (31)
  Total assets                                   462.66    450.34         3
  Working capital deficiency                      13.68     18.58       (26)
  Long term bank debt                             50.55     44.02        15
  Convertible debentures at maturity              57.50     57.50         -
  Shareholders' equity                           169.56    192.70       (12)

Weighted Average Shares Outstanding for the
 Period (millions) - Basic                        30.10     29.91         1
Total Common Shares Outstanding at Period End
 (millions)                                       30.12     29.97         1
----------------------------------------------------------------------------
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.
Cash dividends are net of the Dividend Reinvestment Plan in 2013. The
Dividend Reinvestment Plan was suspended September 2013.



                                               Three Months Ended March 31,
----------------------------------------------------------------------------
                                                                    Percent
                                                   2014      2013    Change
----------------------------------------------------------------------------
Operating Highlights
Average Daily Production
  Oil and liquids (bbl/d)                         4,320     5,113       (16)
  Natural gas (mmcf/d)                            14.05     15.21        (8)
  Equivalent (boe/d)                              6,662     7,648       (13)

Average Selling Price (before the impact of
 financial risk management contracts)
  Oil and liquids ($/bbl)                         86.71     71.62        21
  Natural gas ($/mcf)                              5.18      3.01        72

Netback ($/boe)
  Gross petroleum and natural gas sales           67.15     53.87        25
  Royalties                                      (11.21)    (9.69)       16
  Realized gain/(loss) on derivatives             (3.84)     1.86      (306)
  Operating expenses                             (17.04)   (17.27)       (1)
  Transportation expenses                         (0.85)    (0.66)       29
  Operating netback                               34.21     28.11        22

Wells Drilled, Net                                  3.7       5.1       (27)

Undeveloped Land at Period End (thousand net
 acres)                                             202       321       (37)
----------------------------------------------------------------------------
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 first quarter of 2014 that highlighted continued progress in its drive to become a long term sustainable, dividend-paying energy producer. The quarter was highlighted by the commissioning of the Little Bow Alkaline Surfactant Polymer ("ASP") enhanced oil recovery project and the commencement of ASP injection into the reservoir.

Zargon's sustainability model implies balancing cash inflows and outflows, generating meaningful growth in cash flow per share, while continuing the shift toward oil and liquids over the next few years. Zargon believes that the Little Bow ASP enhanced oil recovery production will help improve sustainability, as it offers the best blend of low-decline, low-sustaining capital and high-netback and long-life assets available to the company.

The Company's focus for the remainder of 2014 will be to:


--  Deliver Little Bow phase 1 ASP operational and production targets of an
    incremental 350 barrels of oil per day by year end (increasing to a 2015
    average rate of 900 barrels of oil per day);

--  Finalize the design of the Little Bow phase 2 ASP project and advance
    the Little Bow phase 3 and 4 ASP engineering studies;

--  Deliver a consistent dividend of $0.06 per common share per month;

--  Execute a continuing property divestiture program designed to high-grade
    and concentrate the Company's asset portfolio on our core oil
    exploitation projects;

--  Direct a high-graded oil exploitation capital program focused on our
    five long-life low-decline oil exploitation properties (Williston Basin,
    Taber, Bellshill Lake, Little Bow non-ASP and Hamilton Lake); and

--  Maintain (and ultimately improve) our strong balance sheet.

Little Bow Alkaline Surfactant Polymer ("ASP") Project

Zargon commissioned the Little Bow ASP enhanced oil recovery project and commenced first chemical injections in March 2014. This ASP project entails the injection of large volumes of a dilute chemical solution into a partially depleted oil reservoir to recover incremental oil reserves. To date, the ASP plant operations and injection well rates have met or exceeded expectations.

The total cost to complete the project was approximately $50 million which is roughly consistent with our November 2012 press release that forecasted a $47 million project cost and a December 2013 injection date. The total construction capital cost of phases 1 and 2 of the Little Bow ASP project will be approximately $62 million. The estimated total phase 1 and 2 chemical cost for the 2014-2019 chemical injection period will be capitalized and is now estimated at $81 million (as spent dollars), a five percent increase from prior estimates due to a change in forecasted Canadian dollar exchange rates. Phase 2 implementation costs are expected to be $12 million and are scheduled for late 2015.

Phase 1 of the Little Bow ASP project is expected to provide 100 barrels of oil per day of average incremental production in 2014, which will be comprised of an initial production response in the 2014 third quarter and a 2014 year end rate of 350 barrels of oil per day. Incremental production is expected to exceed 900 barrels of oil per day in 2015 and then increase to 1,550 barrels of oil per day in 2016, once phase 2 production begins.

Follow-on capital expenditures of $80 million (including chemical costs) for phases 3 and 4 of the Little Bow ASP project are expected to yield an additional 3.6 million barrels of incremental oil and Zargon's combined Little Bow project (phases 1 through 4) total production is expected to stabilize at 2,200 barrels of oil per day in the 2021 through 2023 period. For further information regarding the Little Bow ASP project, please refer to our updated corporate presentation, which is available at www.zargon.ca.

Other Field Activities

In addition to the $7.5 million of ASP capital expenditures, Zargon executed a $9.4 million capital program in the 2014 first quarter on conventional oil exploitation assets, which included the drilling of 3.7 net horizontal drainage wells, mostly in the Williston Basin core area.

For the remainder of the year, Zargon is planning on drilling an additional 14 net high-graded horizontal oil exploitation wells, for Taber Sunburst (4), Bellshill Lake Mannville (5) and Williston Basin Mississippian drainage (5) projects. In aggregate, Zargon has identified more than 60 horizontal locations in five conventional (non-ASP) oil exploitation projects, which will provide a high-graded drilling inventory for many years. Each of these five oil exploitation projects are (or will be) pressure supported by water injections or natural reservoir aquifers and consequently provide long-life low-decline oil volumes that will support future dividends.

Property Dispositions Update

During the 2014 first quarter, property dispositions of $1.5 million were concluded, which primarily related to the sale of assets in southeast Saskatchewan. With the Little Bow ASP tertiary recovery project now commissioned, Zargon will focus on consolidating our property footprint on higher netback assets. To meet this objective, we will be using third party services to market 14 non-strategic properties that, in aggregate, are producing 170 barrels of oil per day and 9.7 million cubic feet of natural gas per day (1,790 barrels of oil equivalent per day). If acceptable bids are received, these dispositions will enable Zargon to realize a lower cost structure through a disciplined focus on our growing tertiary oil recovery business and the stable production volumes coming from the measured exploitation of core, conventional long-life low-decline oil properties.

2014 Outlook

Zargon's 2014 non-ASP field capital budget has been set at $35 million (before dispositions) of which approximately $26 million will be spent in the remaining three quarters. The ASP 2014 capital budget now calls for $8 million of capital expenditures (first quarter expenditures of $7.5 million) and $9 million of chemical costs.

Our 2014 capital budget also incorporated $5 million of property dispositions, of which $1.5 million have been completed by early May. Depending on the results of our property disposition initiative, the year's actual dispositions could be considerably larger. Initially, disposition proceeds (if any) would be used to retire bank debt.

Also, Zargon has entered into a significant oil hedging program to provide a measure of stability and predictability to cash flows as we wait for the ASP production volumes to ramp up. For the remainder of 2014, Zargon has hedged 2,733 barrels per day at $91.54 US/bbl WTI and 267 barrels per day at $99.60 Cdn/bbl WTI, while for the first half of 2015 an average of 1,200 barrels per day is hedged at $92.96 US/bbl WTI.

Production Guidance

In the February 19, 2014 Little Bow and reserves press release, Zargon provided first quarter 2014 oil production rate guidance of 4,300 barrels of oil and liquids per day. Actual first quarter volumes were 4,320 barrels of oil and liquids per day and met guidance. The press release also set Zargon's first quarter 2014 natural gas production guidance of 14.0 million cubic feet per day. First quarter actual volumes were 14.1 million cubic feet per day and met guidance.

Oil and liquids production for the 2014 second quarter is set at 4,200 barrels of oil per day and includes the impact of spring break-up. Second quarter natural gas production guidance is set at 14.0 million cubic feet per day. For the remainder of the year, production volumes will depend on the magnitude and timing of our property disposition programs, the timing and drilling results from our Taber, Bellshill Lake and Williston Basin oil exploitation drilling programs and the timing and the magnitude of the first production volumes from our Little Bow ASP project. Based on our forecasted 2014 Little Bow ASP exit production rate of 350 barrels of oil per day, we are forecasting 2014 year end corporate production rates of 4,550 barrels of oil per day (excluding the effect of property dispositions).

Acknowledgement

Finally, we would like to personally acknowledge Margaret McKenzie who has decided to not stand for re-election to the Zargon Board this year. Margaret joined our Board in January 2007 and over the past seven years has served Zargon and its shareholders well through her thoughtful counsel and advice. We thank Margaret for her significant contributions and wish her the very best in her future endeavours.

Forward-Looking Statements

This press release offers our assessment of Zargon's future plans and operations as at May 14, 2014, 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: guidance as to our 2014 capital budgets, including the allocation thereof and the sources of funding and various plans, forecasts and estimates as to drilling cost reduction initiatives, and other operational forecasts and plans and results therefrom under the heading "Little Bow Alkaline Surfactant Polymer ("ASP") Project", "Other Field Activities", "Property Dispositions Update" and "2014 Outlook"; our plans with respect to our Little Bow ASP project and the results therefrom referred to under the headings "Message to Shareholders", "Little Bow Alkaline Surfactant Polymer ("ASP") Project" and "Production Guidance"; our plans for our hedges under the heading "2014 Outlook"; and all matters, including guidance as to our estimated 2014 and beyond production and production mix, under the heading "Production 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 March 31, 2014 and 2013 for a discussion of cash flows from operating activities and funds flow from operating activities.

51-101 Advisory

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.

Filings

Zargon has filed with Canadian securities regulatory authorities its unaudited financial statements for the three months ended March 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.

About Zargon

Based in Calgary, Alberta, Zargon's securities trade on the Toronto Stock Exchange and there are currently approximately 30.127 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.

More Stories By Marketwired .

Copyright © 2009 Marketwired. All rights reserved. All the news releases provided by Marketwired are copyrighted. Any forms of copying other than an individual user's personal reference without express written permission is prohibited. Further distribution of these materials is strictly forbidden, including but not limited to, posting, emailing, faxing, archiving in a public database, redistributing via a computer network or in a printed form.

Latest Stories
WebSocket is effectively a persistent and fat pipe that is compatible with a standard web infrastructure; a "TCP for the Web." If you think of WebSocket in this light, there are other more hugely interesting applications of WebSocket than just simply sending data to a browser. In his session at 18th Cloud Expo, Frank Greco, Director of Technology for Kaazing Corporation, will compare other modern web connectivity methods such as HTTP/2, HTTP Streaming, Server-Sent Events and new W3C event APIs ...
With an estimated 50 billion devices connected to the Internet by 2020, several industries will begin to expand their capabilities for retaining end point data at the edge to better utilize the range of data types and sheer volume of M2M data generated by the Internet of Things. In his session at @ThingsExpo, Don DeLoach, CEO and President of Infobright, will discuss the infrastructures businesses will need to implement to handle this explosion of data by providing specific use cases for filte...
SYS-CON Events announced today that Avere Systems, a leading provider of enterprise storage for the hybrid cloud, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Avere delivers a more modern architectural approach to storage that doesn’t require the overprovisioning of storage capacity to achieve performance, overspending on expensive storage media for inactive data or the overbuilding of data centers ...
SYS-CON Events announced today that Pythian, a global IT services company specializing in helping companies adopt disruptive technologies to optimize revenue-generating systems, has been named “Bronze Sponsor” of SYS-CON's 18th Cloud Expo, which will take place on June 7-9, 2015 at the Javits Center in New York, New York. Founded in 1997, Pythian is a global IT services company that helps companies compete by adopting disruptive technologies such as cloud, Big Data, advanced analytics, and DevO...
In most cases, it is convenient to have some human interaction with a web (micro-)service, no matter how small it is. A traditional approach would be to create an HTTP interface, where user requests will be dispatched and HTML/CSS pages must be served. This approach is indeed very traditional for a web site, but not really convenient for a web service, which is not intended to be good looking, 24x7 up and running and UX-optimized. Instead, talking to a web service in a chat-bot mode would be muc...
SYS-CON Events announced today that (ISC)²® (“ISC-squared”) will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Two leading non-profits focused on cloud and information security, (ISC)² and Cloud Security Alliance (CSA), developed the Certified Cloud Security Professional (CCSP) certification to address the increased demand for cloud security expertise due to rapid growth in cloud. Recently named “The Next...
More and more companies are looking to microservices as an architectural pattern for breaking apart applications into more manageable pieces so that agile teams can deliver new features quicker and more effectively. What this pattern has done more than anything to date is spark organizational transformations, setting the foundation for future application development. In practice, however, there are a number of considerations to make that go beyond simply “build, ship, and run,” which changes ho...
SYS-CON Events announced today that AppNeta, the leader in performance insight for business-critical web applications, will exhibit and present at SYS-CON's @DevOpsSummit at Cloud Expo New York, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. AppNeta is the only application performance monitoring (APM) company to provide solutions for all applications – applications you develop internally, business-critical SaaS applications you use and the networks that deli...
Fortunately, meaningful and tangible business cases for IoT are plentiful in a broad array of industries and vertical markets. These range from simple warranty cost reduction for capital intensive assets, to minimizing downtime for vital business tools, to creating feedback loops improving product design, to improving and enhancing enterprise customer experiences. All of these business cases, which will be briefly explored in this session, hinge on cost effectively extracting relevant data from ...
The Art of DevOps provides a fun overview to help teams understand DevOps. Written in the style of the famous 6th century Chinese manuscript “The Art of War,” this eBook describes DevOps in the form of a mission to continuously deliver assets to the operational battlegrounds safely, securely, and quickly. It’s a fun read with valuable insights.
Recognizing the need to identify and validate information security professionals’ competency in securing cloud services, the two leading membership organizations focused on cloud and information security, the Cloud Security Alliance (CSA) and (ISC)^2, joined together to develop an international cloud security credential that reflects the most current and comprehensive best practices for securing and optimizing cloud computing environments.
Companies can harness IoT and predictive analytics to sustain business continuity; predict and manage site performance during emergencies; minimize expensive reactive maintenance; and forecast equipment and maintenance budgets and expenditures. Providing cost-effective, uninterrupted service is challenging, particularly for organizations with geographically dispersed operations.
With the Apple Watch making its way onto wrists all over the world, it’s only a matter of time before it becomes a staple in the workplace. In fact, Forrester reported that 68 percent of technology and business decision-makers characterize wearables as a top priority for 2015. Recognizing their business value early on, FinancialForce.com was the first to bring ERP to wearables, helping streamline communication across front and back office functions. In his session at @ThingsExpo, Kevin Roberts...
SYS-CON Events announced today that FalconStor Software® Inc., a 15-year innovator of software-defined storage solutions, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. FalconStor Software®, Inc. (NASDAQ: FALC) is a leading software-defined storage company offering a converged, hardware-agnostic, software-defined storage and data services platform. Its flagship solution FreeStor®, utilizes a horizonta...
DevOps is not just last year’s buzzword. Companies with DevOps practices are 2.5x more likely to exceed profitability, market share, and productivity goals. But how do you enable high performance? What can you do right now to start? Find out from DevOps experts including Gene Kim, co-author of "The Phoenix Project," and the Dynatrace Center of Excellence.