Zargon Oil & Gas Ltd. Provides 2012 Fourth Quarter and Full Year Financial Results
12 Mars 2013 - 10:01PM
Marketwired Canada
Zargon Oil & Gas Ltd. (TSX:ZAR) (TSX:ZAR.DB) ("Zargon" or the "Company").
HIGHLIGHTS FROM THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2012
-- Fourth quarter 2012 oil production averaged 5,065 barrels of oil and
liquids per day, consistent with the preceding quarter. Fourth quarter
natural gas production averaged 15.93 million cubic feet per day, a four
percent increase from the prior quarter. Total fourth quarter production
averaged 7,720 barrels of oil equivalent per day, a one percent increase
from the prior quarter.
-- Fourth quarter funds flow from operating activities of $16.42 million
($0.55 per basic share) were 14 percent higher than the $14.35 million
($0.48 per basic share) recorded in the prior quarter.
-- Monthly cash dividends of $0.06 per common share were declared in the
fourth quarter of 2012 for a total of $5.37 million ($4.70 million after
accounting for the common shares issued under the Dividend Reinvestment
Plan ("DRIP") in lieu of cash dividends). These cash dividends (net of
the DRIP) were equivalent to a payout ratio of 29 percent of funds flow
from operating activities.
-- During the quarter, exploration and development capital expenditures
(excluding property acquisitions and dispositions) were $25.64 million
for field related programs and included $3.15 million of Alkaline
Surfactant Polymer ("ASP") project spending. Zargon drilled 15.0 net
wells which resulted in 15.0 net oil wells. Total net capital
expenditures of $25.79 million were made in the quarter which includes
property acquisitions and administrative asset expenditures.
-- For calendar 2012, oil and liquids production averaged 5,255 barrels of
oil and liquids per day, a four percent decrease from the preceding year
as production additions from our 2012 drilling and exploitation
activities were offset by property dispositions. Calendar 2012 natural
gas production averaged 17.17 million cubic feet per day, a 22 percent
decrease from 2011 reflecting production shut-ins as well as natural
declines. Total 2012 production averaged 8,117 barrels of oil equivalent
per day, an 11 percent decrease from the prior year.
-- Funds flow from operating activities in 2012 of $56.66 million ($1.91
per basic share) were seven percent lower than the $60.67 million ($2.11
per basic share) recorded in the prior year.
-- Zargon declared cash dividends totalling $1.08 per common share during
2012 for a total of $31.95 million ($27.35 million net of the DRIP).
These cash dividends (net of the DRIP) were equivalent to a payout ratio
of 48 percent of funds flow from operating activities.
-- Net capital expenditures for the year totalled $30.25 million;
consisting of $64.69 million of exploitation and development programs
and $0.06 million of administrative assets which was offset by $34.50
million of net property dispositions. The $64.69 million of exploitation
and development programs include $6.48 million of ASP project costs.
During the year, Zargon drilled 27.8 net wells yielding 26.8 net oil
wells and 1.0 net abandonment.
-- Zargon's December 31, 2012 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 $113.18
million, was approximately 2.0 times 2012 funds flow from operating
activities, and was up three percent from the 2011 year end net debt of
$109.50 million. At December 31, 2012, Zargon had approximately $128.55
million of unutilized credit facilities available.
Recent Developments
-- Zargon has sanctioned the construction of its tertiary recovery ASP oil
exploitation project at the Little Bow oil property in Southern Alberta.
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. The projected 2013 capital cost for the Little
Bow ASP project is $38 million. For further information regarding the
Little Bow ASP project, please refer to Zargon's February 20, 2013 press
release and Zargon's updated corporate presentation, which is available
on our website at www.zargon.ca.
-- Zargon has continued to sell forward oil production volumes. For 2013,
Zargon has entered into 2,875 barrels of oil per day of oil fixed price
sales contracts at an average West Texas Intermediate ("WTI") price of
$97.94 US per barrel. For 2014, Zargon has entered into 1,100 barrels of
oil per day of oil fixed price sales contracts at an average WTI price
of $93.95 US per barrel. For further information regarding Zargon's oil
hedging program, please refer to Zargon's updated corporate
presentation, which is available on our website at www.zargon.ca.
-- Zargon is proceeding with a property disposition program that will be
used to fund $20 million of Zargon's 2013 capital program. In February,
$3.50 million of proceeds were realized from the disposition of 1,100
net acres of undeveloped land and 10 barrels of oil equivalent per day
in the Karr area of Alberta. Additionally, a combined 200 barrels of oil
per day and 0.25 million cubic feet of natural gas per day of production
in the Morinville, Twining, Wayne and Provost, Alberta and Workman,
Saskatchewan areas will be marketed using a third party in the second
quarter of 2013. Additional oil properties, as required, will be
marketed in the second half of 2013, in order to meet our $20 million
disposition target.
Three Months Ended Year Ended
December 31, December 31,
----------------------------------------------------------------------------
2012 2011 Percent Percent
(unaudited)(unaudited) Change 2012 2011 Change
----------------------------------------------------------------------------
Financial
Highlights
Income and
Investments ($
millions)
Gross petroleum
and natural gas
sales 37.88 51.13 (26) 157.95 191.53 (18)
Funds flow from
operating
activities 16.42 17.10 (4) 56.66 60.67 (7)
Cash flows from
operating
activities 16.85 22.97 (27) 58.87 73.26 (20)
Cash dividends
(net of Dividend
Reinvestment
Plan) 4.70 7.27 (35) 27.35 38.14 (28)
Net
earnings/(loss) (9.88) (23.87) 59 (5.38) 10.38 (152)
Field capital and
administrative
asset
expenditures 25.59 23.80 8 64.75 72.02 (10)
Net property and
corporate
acquisitions/(di
spositions) 0.20 1.08 (81) (34.50) (23.37) (48)
Net capital
expenditures 25.79 24.88 4 30.25 48.65 (38)
Per Share, Basic
Funds flow from
operating
activities
($/share) 0.55 0.58 (5) 1.91 2.11 (9)
Net
earnings/(loss)
($/share) (0.33) (0.82) 60 (0.18) 0.36 (150)
Cash Dividends
($/common share) 0.18 0.30 (40) 1.08 1.56 (31)
Balance Sheet at
Period End ($
millions)
Property and
equipment (D&P) 389.97 410.67 (5)
Exploration and
evaluation
assets (E&E) 19.97 25.18 (21)
Total assets 445.11 470.69 (5)
Working capital
deficiency 19.94 16.80 19
Long term bank
debt 35.74 92.70 (61)
Convertible
debentures at
maturity 57.50 - -
Shareholders'
equity 196.58 223.81 (12)
Weighted Average
Shares
Outstanding for
the Period
(millions) -
Basic 29.81 29.28 2 29.61 28.63 3
Total Common
Shares
Outstanding at
Period End
(millions) 29.87 29.36 2
----------------------------------------------------------------------------
Notes:
Funds flow from operating activities is an additional GAAP term that represents
net earnings/loss and asset retirement expenditures except for non-cash items.
Three Months Ended Year Ended
December 31, December 31,
----------------------------------------------------------------------------
2012 2011 Percent Percent
(unaudited) (unaudited) Change 2012 2011 Change
----------------------------------------------------------------------------
Operating
Highlights
Average Daily
Production
Oil and liquids
(bbl/d) 5,065 5,619 (10) 5,255 5,468 (4)
Natural gas
(mmcf/d) 15.93 21.96 (27) 17.17 21.97 (22)
Equivalent
(boe/d) 7,720 9,278 (17) 8,117 9,130 (11)
Average Selling
Price (before
the impact of
financial risk
management
contracts)
Oil and liquids
($/bbl) 72.06 87.11 (17) 75.07 82.09 (9)
Natural gas
($/mcf) 2.93 3.02 (3) 2.16 3.45 (37)
Netback ($/boe)
Gross petroleum
and natural
gas sales 53.33 59.91 (11) 53.16 57.47 (7)
Royalties (9.94) (9.66) 3 (10.14) (10.19) -
Realized
gain/(loss) on
derivatives 3.70 (2.74) 235 (0.05) (3.55) 99
Operating
expenses (15.79) (17.82) (11) (15.92) (16.68) (5)
Transportation
expenses (0.70) (0.50) 40 (0.52) (0.51) 2
Operating
netback 30.60 29.19 5 26.53 26.54 -
Wells Drilled,
Net 15.0 11.5 30 27.8 35.3 (21)
Undeveloped Land
at Period End
(thousand net
acres) 337 422 (20)
----------------------------------------------------------------------------
Notes:
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.
Forward-Looking Statements
This press release offers our assessment of Zargon's future plans and operations
as at March 12, 2013, 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 2013 capital budget (including ASP),
guidance as to our 2013 and 2014 fixed price sales contracts and forecasts and
estimates as to our 2013 dispositions under the heading "Recent Developments".
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 years ended December 31, 2012 and
2011 for a reconciliation of cash flows from operating activities to 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 financial
statements for the year ended December 31, 2012 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 29.908 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
C.H. Hansen
President and Chief Executive Officer
J.B. Dranchuk
Vice President, Finance and Chief Financial Officer
Zargon Oil & Gas Ltd.
403-264-9992
zargon@zargon.ca
www.zargon.ca
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