Corporate Presentation February 12, 2018 zargon.ca
Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at February 9, 2018, 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, 2018 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 2018 and beyond, strategic alternatives review process, the source of funding for our 2018 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
YE 2017 Reserve Report Highlights Zargon’s 2017 year end reserves were announced on February 12, 2018. Despite a restricted capital budget of $8.9 million (unaudited), Zargon’s proved developed producing reserve additions replaced 84% of Zargon’s 2017 production volumes (71% for proved and probable producing reserves). • Proved and probable reserves: 12.45 mmboe (87% oil and liquids) • Proved and probable developed producing reserves: 9.12 mmboe (87% oil and liquids) • Proved and probable developed producing oil and liquids reserve life: 11.3 years • Proved and probable developed producing reserves net asset value: $100 million. 2,500 Zargon Operated Oil Production Zargon’s oil properties are pressure Oil Production (bbl/day) 2,000 supported by waterfloods, tertiary Little Bow ASP recovery schemes or natural aquifers. Base corporate oil production decline is 1,500 less than 10% per year. North Dakota Stable production volumes can be delivered with low cost, exploitation 1,000 (plumbing type) capital programs focused on waterflood and other enhancements. Alberta (excluding ASP) With additional funds, production growth 500 can be delivered by drilling North Dakota and Taber undeveloped locations. 0 3 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
Recent Financial and Production Results Zargon’s Q3 2017 results: Q3 funds flow of $1.76 million ($0.06/share) Q3 2017 Financial Q3 field cash flow of $3.27 million Results $1.77 million Q3 capital program focused on waterfloods and well reactivations Zargon’s Q4 2017 Production Results: Q4 production volumes of 2,416 boe/d; 2017 annual production volumes of 2,531 boe/d, Q4 compares with 2017 guidance of 2,500 boe/d. Production Q4 oil and liquids production of 1,924 bbl/d; Q4 natural gas production of 2.95 mmcf/d, Pro Forma Results reflected shut-ins of uneconomic volumes due to low field prices. Balance Sheet Zargon’s capital structure (with only 30.85 million shares outstanding) provides stakeholders a very substantial upside if higher WCS oil prices materialize. Bank debt – $nil Balance Sheet (at Working Capital – Positive $3.5 million (unaudited) year end Convertible Debentures – $41.9 million 2017) Net Debt – $38.4 million (unaudited) Q1 2018 Hedges: 1,000 bbl/d @ $70.15 Cdn./bbl (WTI) Q2 2018 Hedges: 1,000 bbl/d @ $70.50 Cdn./bbl (WTI) 4
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