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OPERATIONAL UPDATE:
-- Fourth quarter 2012 total production averaged 7,720 barrels of oil equivalent per day (on a 6:1 equivalency basis), a one percent increase from the prior quarter's rate of 7,634 barrels of oil equivalent per day.-- Fourth quarter 2012 oil and liquids production volumes averaged 5,065 barrels per day, essentially unchanged from 5,079 barrels per day in the prior quarter and less than one percent below production guidance levels of 5,100 barrels per day. On a production per million share basis (basic), oil and liquids production averaged 170 barrels per day in the fourth quarter essentially unchanged from the prior quarter's rate of 171 barrels per day.-- Fourth quarter 2012 natural gas production volumes averaged 15.93 million cubic feet per day, a four percent increase from the prior quarter rate of 15.33 million cubic feet per day and three percent above production guidance levels of 15.50 million cubic feet per day. The production gains came from the reactivation of natural gas wells that had been shut-in during the summer due to very low field natural gas prices.-- Fourth quarter 2012 oil and liquids production represented 66 percent of total production based on a 6:1 equivalent basis, up from 61 and 58 percent weightings in fourth quarter 2011 and 2010, respectively.-- For calendar 2012, Zargon's production averaged 8,117 barrels of oil equivalent per day, comprised of 5,255 barrels of oil and liquids per day and 17.17 million cubic feet of natural gas per day.-- During the full year 2012, Zargon spent $58.2 million (unaudited) on field activities and a further $6.5 million (unaudited) on the Little Bow ASP project. These expenditures were partially offset by a net $34.5 million (unaudited) of property dispositions and resulted in net 2012 total capital expenditures of $30.2 million (unaudited).-- During the 2012 fourth quarter, Zargon spent $22.5 million (unaudited) on field capital programs (exclusive of $3.2 million of ASP related expenditures). Zargon completed an active 15.0 net well oil exploitation drilling program (13.0 net horizontal wells) that resulted in 14.0 net oil wells and 1.0 water disposal well. The drilling program included 4.8 Williston Basin horizontal Frobisher and Midale oil wells, 3.0 oil wells in the Taber Sunburst property, along with 4.0 Hamilton Lake and 2.0 Bellshill Lake oil exploitation wells in the Alberta Plains North core area. The capital program also included significant battery, pipeline and infrastructure upgrade expenditures at Hamilton Lake, Bellshill Lake, Little Bow, Elswick and Steelman.-- Results from the Bellshill Lake and Taber fourth quarter drilling programs met or exceeded expectations. In the Williston Basin, three of the five locations met or exceeded expectations. At Hamilton Lake, three monobore horizontal multi-frac locations were drilled in an attempt to reduce costs and improve recoveries from our wholly owned 47 section Viking oil resource opportunity. Significant improvements in costs were made, but initial production data from these wells did not perform up to our 60 thousand barrels of oil reserves per well type curve that had been based on the results of the first five horizontal locations drilled on the property. Prior to drilling further wells on this property, we will rework our technical analysis to determine the optimal approach to develop the Hamilton Lake oil resource.-- During this 2013 year's "heavy spend" period for the construction of the Little Bow ASP project, Zargon will proceed with a modest conventional oil exploitation capital program. In the first quarter of 2013, we will drill five Midale drainage locations in the Williston Basin. In the summer, five Taber Sunburst and two Bellshill Viking horizontal wells are planned. Williston Basin drilling activities will resume this fall with an additional five locations. Additional wells will be added to the conventional oil exploitation budget throughout the year, as we complete the Little Bow construction project milestones.
