CALGARY, ALBERTA -- (Marketwire) -- 02/20/13 -- Zargon Oil & Gas Ltd. (the "Company" or "Zargon") (TSX: ZAR) (TSX: ZAR.DB) is pleased to announce the sanctioning of the construction of the Little Bow Alkaline Surfactant Polymer ("ASP") tertiary recovery facility, provide an operational update, provide 2013 guidance and report its 2012 year end reserves. Zargon intends to release its 2012 audited financial results on March 12, 2013, after market close.
LITTLE BOW ASP PROJECT SANCTIONING:
-- Zargon is sanctioning the construction of its tertiary recovery ASP oil exploitation project at the Little Bow oil property in Southern Alberta. This ASP project entails the injection of large volumes of a dilute chemical solution into a partially depleted oil reservoir to recover incremental oil reserves. With sanctioning, phases 1 and 2 of the Little Bow ASP project will be Canada's ninth operational ASP project. For a full description of the Little Bow ASP project, please refer to the company's website at www.zargon.ca.-- After three years of preparation, Zargon is now ready to proceed with the construction phase of the Little Bow project. In particular, the Energy Resources Conservation Board ("ERCB") regulatory scheme approval has been obtained, detailed engineering design has been completed, long lead time and large equipment orders have been placed and Class 3 construction cost estimates have been prepared. The project entails the construction of a water softening plant, chemical handling/mixing facilities and water injection facilities. In addition, there will be oil battery upgrades, pipeline replacements/upgrades, water injector conversions and well reactivations.-- Including the $6.5 million of ASP costs spent in 2012, the total capital cost of the wholly owned phases 1 and 2 of the Little Bow ASP project is approximately $59 million (excluding the cost of capitalized chemicals). The scheduling of these expenditures is $38 million in 2013, $4 million in 2014, and $11 million in 2015 relating to the phase 2 implementation. With sanctioning, field construction will proceed during this summer, which will permit January 2014 first injection and initial incremental oil volumes by mid 2014.-- Based on Southern Alberta analog pools and Little Bow reservoir model studies with predicted recoveries as high as a 17 percent incremental reservoir recovery, Zargon's internal base case sanctioning economics use a 12 percent incremental reservoir recovery factor and predicts an estimated 4.87 million barrels of proved and probable oil reserves. The increased reserves are due in part to an updated reservoir model with increased chemical injections, and the corresponding phase 1 and 2 chemical costs for the six year chemical injection period (2014-2020) will be capitalized and are estimated at $66 million ($50 million PVBT 10%).-- Based on Zargon's base case economics, incremental oil production from phases 1 and 2 is estimated to average 1,470 barrels of oil per day in the five year 2016 to 2020 period. The long-life stable production profile of the ASP project is well suited for Zargon's dividend paying business model.-- Phase 1 and 2 field netbacks are estimated, assuming a field oil price of $68 per barrel ($85 Cdn. per barrel Edmonton par price), to be approximately $50 per barrel of incremental oil production. Zargon estimates that the phase 1 and 2 before tax rate of return for this enhanced oil recovery project will be 18 percent. The project is calculated to have a breakeven (PVBT 10%) field oil price of $48 per barrel. Potential upsides to these results could come from follow-on phases, higher oil prices, improved reservoir recoveries or Alberta Crown tertiary royalty modifications.-- Follow-on capital expenditures for phases 3 and 4 of the Little Bow ASP project are expected to be completed by 2017 with forecasted total combined phase 1 to 4 peak production rates expected to occur in 2020 at a combined incremental production rate of 2,300 barrels of oil per day. For further information regarding the Little Bow ASP project, please refer to the company's updated corporate presentation, which is available on our website at www.zargon.ca.