Corporate Presentation May 10, 2016 zargon.ca
Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at May 10, 2016, 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 Zargon’s corporate strategy and business plans, Zargon’s oil exploration project inventory and development plans, Zargon’s dividend policy and the amount of future dividends, 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 and dividend model and the assumptions contained therein and the results there from, anticipated payout rates, 2016 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 2016 and beyond, strategic alternatives review process, the source of funding for our 2016 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 is 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 known 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
Corporate Summary Zargon’s assets offer low-decline, operated oil production with significant oil exploitation opportunities • Zargon’s assets provide exceptional torque to higher oil prices (financial, operational, and exploitation) • Core assets (excluding Little Bow ASP) were under- capitalized during the last 3 years • 4,176 boe/d (Q1 2016) of established, low-decline production coming from two distinct assets – 84% Liquids-weighted, 83% Average W.I. – 12% Base Annual Oil Decline (excluding growing ASP) • 200,000 net WI acres, 38% undeveloped with low expiry rate • Net operating income of $75.6 MM in 2014 and $21.7 MM in 2015 – Netbacks of $33.84/boe in 2014 and $13.04/boe in 2015 – Operating cost reductions (including ASP optimization) are projected to reduce total opex by 17% in 2016 • Williston Basin assets (1,629 boe/d; 97% Liquids) – 50+ horizontal locations (19 booked by McDaniel) • Alberta Plains assets (2,547 boe/d; 76% Liquids) – 25+ horizontal locations (14 booked by McDaniel) • Alberta Plains includes Little Bow ASP Tertiary Flood – Significant oil exploitation upside at higher oil prices 3
Key Investment Highlights 4
Corporate Overview Capitalization (1) Asset Profile Share Price (05/06/16) $0.56 Gas (MMcf/d) % Gas Liquids (bbl/d) % Liquids Total (boe/d) % of Production Last Quarter Production (Q1 2016) Fully Diluted Shares Outstanding 31.4 Market Capitalization $18 Williston Basin 0.34 3% 1,572 97% 1,629 39% Net Debt (2) $124 Alberta Plains (excl. ASP) 3.36 28% 1,452 72% 2,012 48% Option Proceeds - Little Bow - ASP 0.34 10% 479 90% 535 13% Entity Value $142 LQ Daily Production 4.04 16% 3,503 84% 4,176 100% 52-Week High $3.59 Reserves (December 31, 2015) Gas (Bcf) Liquids (MMbbl) Total (MMboe) LQ RLI 52-Week Low $0.35 Total Proved 8.5 11% 11.7 89% 13.1 8.3 Net Debt Summary (2) P+P Reserves 13.9 11% 18.6 89% 20.9 13.2 Credit Facility Drawn $65 Tax Pools (as at March 31, 2016) Hedging Summary Convertible Debentures (Due June 2017) $58 Working Capital Deficiency $1 Canadian Exploration Expense $42 H1 2016 500bbl/d $79.30 C$/bbl WTI Net Debt $124 Non Capital Losses $144 Canadian Development Expense $31 Credit Facility Summary Canadian Oil & Gas Property Expense $1 Canadian Undepreciated Capital Costs $58 $88 Credit Facility Other $3 $65 Drawn Total Tax Pools $279 $23 Bank Line Available % Drawn 74% Corporate Profile Other Company Details Management Position Directors Employees 26 Office Craig Hansen President and Chief Executive Officer Craig Hansen 8 Field Jeffrey Post Chief Financial Officer K. James Harrison (Chairman) Headquarters Calgary, Alberta, Canada Leslie Burden VP, Land Kyle Kitagawa Primary Exchange Listing TSE Randolph Doetzel VP, Operations Geoffrey Merritt Reserve Evaluators McDaniel Christopher Hustad VP, Alberta Plains South Jim Peplinski Brian Kergan VP, Corporate Development Ron Wigham Robert Moriyama VP, Enhanced Recovery Grant Zawalsky Pete Janjua VP, Williston Basin (1) All numbers in $MMs except per share values. (2) Net debt calculated as long term debt plus working capital deficiency at March 31, 2016. 5
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