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Corporate Presentation August 14, 2019 Forward - PowerPoint PPT Presentation

Corporate Presentation August 14, 2019 Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at August 14, 2019, and contains forward- looking

  1. Corporate Presentation August 14, 2019

  2. Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at August 14, 2019, and contains forward- looking statements. Such statements are generally identified by the use of words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). In particular, this presentation contains forward-looking information as to: the benefits of the proposal and the impact of the proposal on the Company; Zargon's common share interests assuming the completion of the proposal; Zargon's ability to implement its plans relating to the proposal; Zargon’s corporate strategy and business plans; Zargon’s oil exploration project inventory and development plans; future commodity prices; Zargon’s expectation for uses of funds from financing; Zargon’s capital expenditure program and the allocation and the sources of funding thereof; Zargon’s cash flow model and the assumptions contained therein and the results there from; 2019 and beyond production and other guidance and the assumptions contained therein, estimated tax pools; Zargon’s reserve estimates; Zargon’s hedging policies; Zargon’s drilling; development and exploitation plans and projects and the results there from and Zargon’s ASP project plans 2019 and beyond; strategic alternatives review process; the source of funding for our 2019 and beyond capital program including ASP; capital expenditures; costs and the results therefrom. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as 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 are available on our website. Forward-looking statements are provided to allow investors to have a greater understanding of our business. You are cautioned that the assumptions, 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; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparation of such information, 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 contained in this presentation 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. Barrels of Oil Equivalent - Natural gas is converted to a barrel of oil equivalent (“ Boe ”) using six thousand cubic feet of 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. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Estimated reserve values disclosed in this presentation do not represent fair market value. Discovered Petroleum Initially-In- Place (“DPIIP”) is that quantity of petroleum that is estimated, as of a given date, to be contained in k nown accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable. The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year. 2

  3. Corporate Update (August 14, 2019)  Zargon’s experienced a challenging 2018 fourth quarter due to record high WTI – WCS oil price differentials.  Zargon responded by eliminating discretionary capital programs and deferring field work-overs in order to Challenges conserve cash. Consequently, Zargon’s Q4 2018 production dropped to 1,786 barrels of oil equivalent per day and (1,575 bbl/d and 1.27 mmcf/d), Responses  Facing serious cash liquidity challenges, Zargon received approval to convert $41.9 million of convertible debentures into 429 million shares (460 million shares outstanding; 23 million shares after 20 for 1 consolidation).  WTI oil prices and WTI – WCS oil price differentials have improved substantially, and Zargon’s 2019 first half funds flow from operating activities totaled $3.39 million, and free cash flow after all costs (including all capital) totaled $1.15 million. Net debt has declined to $1.41 million, down from $41.54 million at year end 2018. Recovery  Although continuing to defer capital programs (H1 2019 capital program was $1.54 million), Zargon’s oil production has stabilized (H1 2019 volumes of 1,799 boe/d, comprised of 1,557 bbl/d and 1.45 mmcf/d).  Zargon will continue to work to reduce costs and high grade capital programs while allocating free cash flows to enhancing our corporate marketability, through debt reduction and accelerated Q3 asset retirement programs.  Zargon’s Board and management recognize that Zargon is a suboptimal size to operate as a public oil and gas Rationale company. Consequently, Zargon has engaged Macquarie Capital Markets Canada Ltd. to explore strategic Next Steps alternatives that include mergers, sales and/or restructuring options, that will ultimately allow Zargon to continue as a part of a larger better capitalized entity.  With the conversion of Zargon’s outstanding convertible debentures into equity, Zargon’s capital structure is significantly improved and excessive debt levels are no longer resulting in a significant impediment to a potential sale or merger. 3


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