NEWS RELEASE TRANSMITTED BY CCNMatthews
FOR: ZARGON OIL & GAS
TSX SYMBOL: ZAR
AUGUST 11 2000 - 17:52 EDT
Zargon Oil & Gas Ltd. - Announcement
Zargon delivered outstanding results for the first six months of
2000. The momentum created by higher production combined with
continuing strength in both oil and gas commodity prices resulted
in an excellent first half with all operating and financial
parameters reaching new historical levels. Compared to the first
half of 1999:
/T/- revenue increased by 111 percent;
- cash flow increased by 147 percent;
- earnings increased by 262 percent;
- capital expenditures increased by 162 percent;
- gas production increased by 42 percent; and
- total production (10:1) increased by 16 percent./T/
The half was highlighted by a record $14.07 million capital
program that focused on Zargon's two core competencies of
seismically-driven gas exploration/development and efficient oil
property exploitation.
/T/CORPORATE HIGHLIGHTS
Three months ended
June June Percent
2000 1999 Change
---------------------------------------------------------------
FINANCIAL
Income and Investments ($ million)
Production revenue 10.62 5.06 110
Cash flow from operations 5.03 2.16 133
Earnings 1.85 0.70 164
Net capital expenditures 6.35 2.01 216
Per Common Share, Fully Diluted
Cash flow from operations ($/share) 0.32 0.14 129
Earnings ($/share) 0.12 0.05 140
Balance Sheet at Period End
($ million)
Property and equipment
Long-term debt
Shareholders' equity
Shares Outstanding at Period End
(million)
Basic
Fully diluted
OPERATIONS
Average Daily Production
Crude oil and liquids (bbl/d) 1,745 1,670 4
Natural gas (mmcf/d) 11.86 8.47 40
Equivalents (boe/d) 6:1 3,722 3,100 20
Equivalents (boe/d) 10:1 2,931 2,517 16
Average Selling Price
Crude oil and liquids ($/bbl) 39.59 21.91 81
Natural gas ($/mcf) 4.02 2.20 83
Equivalents ($/boe) 39.82 21.94 81
Equivalents after hedges ($/boe) 37.68 21.33 77
Wells Drilled, Net 6.8 1.0 580
Undeveloped Land at Period End
(thousand net acres)
CORPORATE HIGHLIGHTS
Six months ended
June June Percent
2000 1999 Change
---------------------------------------------------------------
FINANCIAL
Income and Investments ($ million)
Production revenue 19.75 9.34 111
Cash flow from operations 9.40 3.80 147
Earnings 3.62 1.00 262
Net capital expenditures 14.07 5.38 162
Per Common Share, Fully Diluted
Cash flow from operations ($/share) 0.61 0.25 144
Earnings ($/share) 0.24 0.07 243
Balance Sheet at Period End
($ million)
Property and equipment 62.07 41.42 50
Long-term debt 19.44 9.12 113
Shareholders' equity 35.51 29.96 19
Shares Outstanding at Period End
(million)
Basic 14.47 14.66 (1)
Fully diluted 15.71 16.07 (2)
OPERATIONS
Average Daily Production
Crude oil and liquids (bbl/d) 1,748 1,699 3
Natural gas (mmcf/d) 12.21 8.62 42
Equivalents (boe/d) 6:1 3,783 3,136 21
Equivalents (boe/d) 10:1 2,969 2,561 16
Average Selling Price
Crude oil and liquids ($/bbl) 38.34 19.52 96
Natural gas ($/mcf) 3.40 2.13 60
Equivalents ($/boe) 36.55 20.14 81
Equivalents after hedges ($/boe) 34.78 19.82 75
Wells Drilled, Net 14.5 5.7 154
Undeveloped Land at Period End 185 132 40/T/
(thousand net acres)
PRODUCTION
Zargon's production averaged 2,969 barrels of oil equivalent per
day in the first half of 2000 which represents a 16 percent
increase over the 1999 first half rate of 2,561 barrels of oil
equivalent per day. Production gains were derived from sharply
higher gas volumes that averaged 12.21 million cubic feet of gas
per day in the 2000 period, a gain of 42 percent over the first
half 1999 rate of 8.62 million cubic feet per day. Oil production
in first half 2000 averaged 1,748 barrels of oil per day, a gain
of three percent from 1,699 barrels of oil per day in first half
1999.
Second quarter 2000 production averaged 2,931 barrels of oil
equivalent per day, which was comprised of 11.86 million cubic
feet of gas per day and 1,745 barrels of oil per day. During the
second quarter, natural gas production was curtailed during 23
days of scheduled and unscheduled shut-ins at Zargon's main
Jarrow compressor station. These shut-ins were due to a
combination of now-resolved mechanical difficulties and a
scheduled 3 million (net) cubic feet of gas per day compressor
expansion. With the expanded Jarrow facilities now operational,
Zargon's current production exceeds 15.5 million cubic feet of
gas per day and 1,750 barrels of oil per day, which equates to
over 3,300 barrels of oil equivalent per day.
FINANCIAL
With higher production rates and continued very strong commodity
prices, Zargon's revenue for first half 2000 reached $19.75
million, an 111 percent increase over the prior year's first half
revenue of $9.34 million. Cash flow from operations increased
strongly to $9.40 million in first half 2000, a gain of 147
percent from $3.80 million reported in first half 1999.
Reflecting sharply higher gas prices, second quarter 2000 cash
flow reached $5.03 million, a 15 percent increase over first
quarter's $4.36 million cash flow. On a per unit basis, Zargon's
second quarter cash flow reached a record $18.86 per barrel of
oil equivalent up from $15.92 in the prior quarter, and $8.20 in
first half 1999.
Earnings increased to $3.62 million in first half 2000
representing a 262 percent improvement over first half 1999
earnings of $1.00 million. Second quarter earnings of $1.85
million were up five percent from $1.77 million of earnings
booked in the first quarter. On a per unit basis, first half
earnings were $6.70 per barrel of oil equivalent or 38 percent of
cash flow. Zargon's after tax annualized return on book equity in
first half 2000 was a very strong 21 percent.
Year over year comparisons on a per share basis continue to be
very strong. Cash flow per fully diluted share increased 144
percent in first half 2000 to $0.61 per share from $0.25 per
share in first half 1999. Second quarter cash flow of $.32 per
fully diluted share improved 10 percent over $.29 per share in
first quarter 2000. Earnings per fully diluted share increased
243 percent in first half 2000 to $.24 per share from $.07 per
share in first half 1999. Second quarter earnings were $.12 per
share, unchanged from the $.12 per share reported in first
quarter 2000.
Over first half 2000, Zargon's expanded pace of field activity
resulted in net capital expenditures of $14.07 million, a 162
percent increase over the $5.38 million spent in first half 1999.
These expenditures were allocated 61 percent to our gas (explore
and develop) business strategies, with the remainder allocated to
our oil (buy and exploit) programs. Zargon's 2000 capital budget
is currently set at $25 million, but will be expanded if and when
value-added opportunities become available. The capital budget
will be funded from cash flow and Zargon's $32.6 million bank
line, of which $19.4 million was drawn at June 30, 2000.
Zargon's debt at June 30, 2000, including adjustments for working
capital, represents less than 1.1 years of the first half 2000
annualized cash flow.
ACQUISITIONS & LAND
Net property acquisitions aggregated $5.16 million in first half
2000 of which $1.03 million was spent in the second quarter.
Nearly all of these acquisitions were directed to expanding oil
exploitation opportunities in Southeast Saskatchewan and at
Taber, Alberta. In the third quarter, Zargon anticipates closing
a minimum of $3 million of additional property acquisitions
relating to Taber oil exploitation projects and expansion of the
Jarrow exploration/development projects.
During first half 2000, Zargon continued to expand its
undeveloped land base to 185 thousand net acres, an increase of
6 percent from 174 thousand net acres as at March 31, 2000, and
an increase of 40 percent from the June 30, 1999 undeveloped
total of 132 thousand net acres. Zargon has also entered into
seven farm-in agreements providing access to an additional 43
thousand net acres of undeveloped land.
DEVELOPMENT AND EXPLOITATION
In the first six months of 2000, Zargon drilled 18 (14.5 net)
wells, a 154 percent increase over the prior year's total.
Year-to-date drilling has resulted in 8.8 net gas wells in East
and West Central Alberta, 2.7 net development oil wells primarily
in Southeast Saskatchewan, and 3.0 net dry holes. All but one of
these wells were operated by Zargon. For the remainder of 2000,
Zargon plans a very active 16 net well drilling program focused
on gas exploration at Jarrow and Pembina, Alberta and oil
exploitation in Southeast Saskatchewan.
Jarrow, Alberta
During first half 2000, Zargon continued to expand and develop
its most important gas property at Jarrow in East Central
Alberta. Eleven (9.4 net) wells were drilled, 60 kilometers of 2D
seismic were shot and the undeveloped land base was expanded to
90 thousand net acres, with an additional 34 thousand net acres
held under option. In late June, Zargon expanded the Jarrow
gathering and compression systems adding 3 million cubic feet of
gas per day of net capacity. Zargon's current production at
Jarrow is now averaging over 10 million cubic feet of gas per
day, up substantially from first half 2000 and calendar 1999
average rates of 6.3 and 4.3 million cubic feet of gas per day,
respectively.
At Jarrow, Zargon has assembled a drilling inventory of
approximately 35 wells of which ten (8 net) wells will be drilled
prior to yearend. Despite recent compression additions the
property still has substantial excess productive capability.
These existing shut-in volumes plus the anticipated new
deliverability from future drilling will be placed on production
through facility expansions scheduled prior to year-end.
Southeast Saskatchewan
During first half 2000, Zargon acquired $3.86 million of
properties in 6 transactions relating to three Southeast
Saskatchewan water flood projects. Zargon also drilled three (2.3
net) exploitation oil wells in the half. Each of these activities
is consistent with Zargon's ongoing "buy and exploit" strategy
that focuses on obtaining increased oil recoveries from large
oil-in-place properties. Zargon is currently working ten water
flood projects in Southeast Saskatchewan, many of which are in
the early stages of their development.
Other Properties
In West Central Alberta, Zargon drilled one (0.5 net) first half
2000 gas well at Pembina, Alberta. The tie-in of this well, along
with two (1.0 net) other shallow Pembina gas wells drilled in
December 1999, have increased Zargon's production at this
property to 0.7 million cubic feet per day. Zargon will follow-up
this success with the drilling of a minimum of four net farm-in
locations during third quarter 2000.
Also in the first half, Zargon completed a $1.30 million oil
property acquisition at Taber, Alberta that has been followed by
a $1.95 million Taber property acquisition scheduled to be closed
in third quarter 2000. Development drilling on this medium
gravity exploitation property is scheduled to commence this fall.
Other successful drilling activities completed in first half 2000
include one (1.0 net) gas well at Hamilton Lake in East Central
Alberta and one (.4 net) oil well at Spirit River in Northwest
Alberta. Further drilling is scheduled at both these properties
during the remainder of the year.
OUTLOOK
Zargon's outlook for the remainder of 2000 and 2001 continues to
be very promising. Zargon's increased size and expanded technical
depth has provided a strong balance of disciplined exploration
and exploitation skills. Zargon's large undeveloped land base
provides an inventory of more than 50 net wells scheduled to be
drilled in the remainder of 2000 and 2001. The combination of
record commodity prices and this greatly expanded project
inventory should generate substantial and profitable growth for
Zargon over the foreseeable future.
Appendix
The table below sets out comparative values for the last five
years:
/T/ Earnings/
Earnings(1) Share(2) Cash Flow(1)
1st Half 2000 $3.62 $.24 $9.40
1999 $1.00 $.07 $3.80
1998 $0.81 $.06 $3.13
1997 $1.36 $.12 $3.53
1996 $0.65 $.07 $2.15
2nd Qtr 2000 $1.85 $.12 $5.03
1999 $0.70 $.05 $2.16
1998 $0.45 $.03 $1.60
1997 $0.58 $.05 $1.69
1996 $0.37 $.04 $1.17
Appendix
The table below sets out comparative values for the last five
years:
Cash Flow/ Capital
Share(2) Revenue Expenditures
(1) (1)
1st Half 2000 $.61 $19.75 $14.07
1999 $.25 $9.34 $5.38
1998 $.24 $6.70 $3.72
1997 $.29 $7.94 $5.05
1996 $.22 $5.32 $3.87
2nd Qtr 2000 $.32 $10.62 $6.35
1999 $.14 $5.06 $2.01
1998 $.12 $3.39 $2.27
1997 $.14 $3.67 $1.88
1996 $.12 $2.87 $1.41
(1) Million Dollars
(2) Fully Diluted Shares/T/
Zargon Oil & Gas Ltd. is an oil and gas company listed on The
Toronto Stock Exchange trading under the symbol ZAR. For
additional information, please contact Craig Hansen, President &
CEO at (403)264-9992 or visit Zargon's website at www.zargon.ca.
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