Zargon Oil & Gas Ltd. announces Q4 2017 production volumes and 2017 year end reserves
Tuesday, Feb 13, 2018
Zargon Oil & Gas Ltd. announces fourth quarter 2017 production volumes and announces 2017 year end reserves. Zargon intends to release its 2017 audited financial results on March 15, 2018, after market close.

2017 FOURTH QUARTER PRODUCTION VOLUMES:

Fourth quarter 2017 production averaged 2,416 barrels of oil equivalent per day, slightly lower than the fourth quarter 2016 rate of 2,449 barrels of oil equivalent per day and 2017 production guidance of 2,500 barrels of oil equivalent per day. The reduced volumes were primarily due to the shut-in of uneconomic gas production resulting from low field prices.

Fourth quarter 2017 oil and liquids production averaged 1,924 barrels per day, and compares to rates of 2,037 barrels of oil and liquids per day in the preceding quarter and 1,952 barrels of oil and liquids per day in the fourth quarter of 2016. Fourth quarter 2017 natural gas production averaged 2.95 million cubic feet per day, and compares to rates of 3.55 million cubic feet per day in the preceding quarter and 2.98 million cubic feet per day in the fourth quarter of 2016.

For calendar 2017, Zargon’s production averaged 2,531 barrels of oil equivalent per day, and was comprised of 1,974 barrels of oil and liquids per day and 3.34 million cubic feet per day of natural gas. With the natural gas shut-ins, we are now forecasting first half 2018 production to average 2,525 barrels of oil and liquids per day, which is comprised of 2,050 barrels of oil and liquids per day and 2.85 million cubic feet of natural gas per day. Additional details regarding guidance, capital budgets, oil exploitation opportunities, hedging and corporate outlook are provided in our updated presentation and previous press releases that are located on our website at www.zargon.ca.

2017 YEAR END RESERVES:

  • Zargon’s reserves have been appraised by our independent reserves evaluator McDaniel & Associates Consultants Ltd. (“McDaniel”) and are effective as of December 31, 2017. Zargon’s 2017 year end proved and probable total reserves totalled 12.45 million barrels of oil equivalent, a four percent decrease from the 2016 year end reserves of 12.91 million barrels of oil equivalent. Total proved and probable oil and liquid reserves are 10.82 million barrels and represent 87 percent of Zargon’s total reserves. These results were delivered with Zargon’s restricted exploitation focused capital program of approximately $8.9 million (unaudited) and did not include the drilling of any wells.

  • Zargon’s 2017 year end proved developed producing reserves decreased two percent to 6.93 million barrels of oil equivalent and included 6.00 million barrels of oil and liquids. Zargon’s proved developed producing reserve totals represent 56 percent of the Zargon’s total proved and probable reserves. In 2017, Zargon’s restricted capital programs delivered proved developed producing reserve additions that replaced 84 percent of Zargon’s 2017 production.

  • Zargon’s 2017 year end proved and probable developed producing reserves decreased three percent to 9.12 million barrels of oil equivalent and included 7.95 million barrels of oil and liquids. Zargon’s proved and probable developed producing reserve totals represent 73 percent of the Zargon’s total proved and probable reserves. In 2017, Zargon’s restricted capital programs delivered proved and probable developed producing reserve additions that replaced 71 percent of Zargon’s 2017 production.

  • Zargon’s oil properties are characterized by pressure supported reservoirs (waterflood, tertiary schemes or natural aquifers) that provide long-life, low-decline oil production. Consequently, Zargon’s proved developed producing oil and liquids reserve life index is 8.5 years and Zargon’s proved and probable producing oil and liquids reserve life index is 11.3 years. Finally, Zargon’s total proved and probable oil and liquids reserve life index is 15.4 years. The relatively large developed producing reserve life indices are indicative of low decline oil production from relatively mature properties.

  • Zargon’s year end 2017 “produce-out” proved and probable net asset value is calculated to be $2.69 per basic share. On a proved developed producing basis the “produce out” net asset value is calculated to be $1.40 per basic share. These calculations reflect McDaniel’s estimate of the Zargon properties’ future cash flow using a before tax 10 percent discount rate and forecast prices and costs plus an independent appraisal of Zargon’s undeveloped land less an allowance for the full future face value of the $41.9 million convertible debenture and working capital. These net asset value estimates do not include site reclamation and abandonment costs for non-producing assets.
DETAILED RESERVE INFORMATION:

Reserves included herein are stated on a gross company working interest basis unless otherwise noted. All reserves information has been prepared in accordance with National Instrument 51-101 Standards of Disclosure (“NI 51-101”). In addition to the detailed information disclosed in this press release, more detailed information will be included in Zargon’s 2017 Annual Information Form to be filed on SEDAR (www.sedar.com) and posted on our website (www.zargon.ca) in March 2018.

Based on the independent reserves evaluation conducted by McDaniel effective December 31, 2017, and prepared in accordance with NI 51-101, Zargon had proved and probable reserves of 12.45 million barrels of oil equivalent.

In calendar 2017, Zargon’s capital program totaled $8.9 million (unaudited) and did not include the drilling of any wells. On a total proved basis, Zargon added 0.41 million barrels of oil and liquids from revisions due mainly to successful oil exploitation and field optimization activities. For total proved natural gas reserves, Zargon added 1.38 billion cubic feet from revisions.  On a combined basis, Zargon’s 2017 total proved net reserve additions increased by 0.64 million barrels of oil equivalent. The McDaniel year over year change in the future proved development capital was a $3.3 million reduction ($15.6 million at December 31, 2017, compared to $18.9 million at December 31, 2016).

On a total proved and probable basis, Zargon added 0.36 million barrels of oil and liquids and 0.64 billion cubic feet of natural gas reserves. On a combined basis, Zargon’s 2017 total proved and probable net reserves additions resulted in an increase of 0.46 million barrels of oil equivalent. The McDaniel year over year changes in the future proved and probable development capital was a $3.1 million decrease ($61.2 million at December 31, 2017, compared with $64.3 million at December 31, 2016).

Zargon’s reserves are characterized by long-life, low-decline oil production with a high producing developed component that provides a corresponding high confidence level. In calendar 2017, net positive reserve additions of 0.77 and 0.65 million barrels of oil equivalents were booked for the proved developed producing and proved and probable developed producing cases. Respectively, these reserve additions replaced 84 and 71 percent of Zargon’s 2017 production. As of December 31, 2017, proved developed producing reserves represent 87 percent of total proved reserves and 56 percent of the total proved and probable reserves.

NET ASSET VALUE:

Zargon’s oil, liquids and natural gas reserves were evaluated using McDaniel’s price forecasts effective January 1, 2018, prior to provisions for income taxes, interest, debt service charges, transaction costs and general and administrative expenses. The estimated values of future net revenue disclosed do not represent the fair market value of the reserves.

For more information, please visit: http://zargon.ca
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