Corporate Presentation March 10, 2015 zargon.ca
Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at March 9, 2015, 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, 2015 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 2015 and beyond, plans to sell un-strategic assets, the source of funding for our 2015 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
Core Attributes Pressure Supported (Waterflood and Waterdrive): 35+ prospective oil exploitation Oil locations in pressure supported (low decline) properties. Exploitation Tertiary (ASP): Little Bow ASP tertiary recovery project provides years of oil production growth. $362 million ($17.96/share) of dividends and distributions paid over history on Dividend total historical equity investment of $210 million. Paying Effective January 2015, the dividend has been reduced to $0.03 per share from $0.06 per share, in order to preserve capital in a low oil price period. After 2+ years of restructuring, Zargon’s remaining assets are either; Long-Life Oil Assets high-netback waterflood/waterdrive low-decline assets, or the Little Bow ASP property that will provide years of low-cost growth. We have the “right” assets for a sustainable income model. 3
Asset Description Properties account for approximately 94% of oil production (3,750 bbl/d); very Waterflood predictable with low declines of 15 percent (or less) per year. and Inventory of low risk oil exploitation wells, can be deferred until prices improve. Waterdrive High proved and probable producing oil reserve life index of 8.8 years (McDaniel Oil corporate estimate) identifies long-term production without any additional wells. Properties Little Bow ASP phase 1 is displaying encouraging oil-banking production Little Bow trends. ASP Combined, Little Bow ASP Phases 1-4 are forecast to provide 2,400 bbl/d of Teritiatry incremental oil production by 2021. Recovery Scalable technology that can be used for other fields. Remaining properties were higher cost, higher decline and did not support our Other Non- sustainable oil income model. Strategic In 2014, we disposed 350+ net wells producing 220 bbl/d and 9.5 mmcf/d (1,800 boe/d). Remaining non-strategic assets of 250 bbl/d and 3.0 mmcf/d (750 boe/d) represents only 6% of oil production. These assets will be “warehoused” until prices improve. 4
Zargon Overview (March 9, 2015) Capitalization Toronto Stock Exchange: Symbols: ZAR; ZAR.DB – Common Shares Outstanding: 30.25 million (basic) – $95 million ($3.14 per share) (1) Market Capitalization: – Net Debt at Dec. 31, 2014: $113 million (after Hamilton Lake sale), comprised of – Convertible Debentures (6%) $57.5 million (face value – June 2017 maturity) Bank Debt and Net Working Capital Deficit $56 million Authorized Bank Debt $130 million (43 percent drawn) Insider Ownership: 3.35 million shares (11 percent) – Dividend & Yield Monthly Dividend (Commencing January 2015): $0.03 per share (reduced from $0.06 per share) – 11.5% (1) Yield at current share price: – Q4 2014 Production Equivalent: 5,222 boe/d – Oil: 4,150 bbl/d (79% of production) – Gas: 6.43 mmcf/d – Q4 2014 Financial Results Funds Flow from Operations $0.42 per basic share ($12.6 million) – Dividends Paid $0.18 per basic share ($5.4 million) – (1) Based on a monthly dividend rate of $0.03/share and using the March 9, 2015 closing share price of $3.14. 5
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