2013 CAPITAL AND PRODUCTION GUIDANCE:
-- Zargon's 2013 capital budget has been set at $40 million for (non-ASP) conventional projects with the drilling of 20 net oil exploitation wells, plus an additional $38 million for the Little Bow ASP project. This $78 million capital program is forecast to be funded by cash flows, bank debt and the sale of $20 million of minor non-strategic oil properties that are not related to Zargon's six core conventional oil projects.-- As at the end of the 2012 fourth quarter, Zargon's debt net of working capital is $113.2 million (unaudited), a level that represents 51 percent of the $222.5 million of credit through convertible debentures and syndicated loan facilities.-- With the revised (non-ASP) 2013 capital budget of $40 million, Zargon's 2013 oil and liquids production guidance level has been revised to 5,000 barrels per day. This guidance is based on a 21 percent annual corporate oil and liquids production decline, the fourth quarter 2012 oil and liquids production rate of 5,065 barrels of oil per day and (non-ASP) capital program production addition efficiencies of $40,000 per barrel of oil and liquids per day. These guidance levels will be adjusted for acquisitions or dispositions as they occur. In the 2013 first quarter, oil and liquids production is forecast to average 5,150 barrels of oil per day.-- Zargon's 2013 natural gas production guidance is expected to average 15.0 million cubic feet per day, a production level that reflects a 12 percent "blowdown" corporate decline from 2012 exit rate production levels of 16.0 million cubic feet per day. In the 2013 first quarter, natural gas production is forecast to average 15.6 million cubic feet per day.-- For 2013, Zargon has entered into 2,875 barrels of oil per day of oil fixed price sales contracts at an average price of $97.94 US per barrel, which represents 57.5 percent of the 2013 production guidance levels.
2012 YEAR END RESERVES:
-- Zargon's 2012 year end proved and probable total reserves decreased nine percent to 31.19 million barrels of oil equivalent. These reserves were appraised by Zargon's independent reserves evaluator McDaniel & Associates Consultants Ltd. ("McDaniel") and are effective as of December 31, 2012. On a 6:1 equivalency basis, oil and liquids comprised 74 percent of Zargon's total proved and probable reserves at year end 2012, up from a 70 percent weighting at the end of 2011.-- Zargon's 2012 year end proved and probable oil and liquids reserves decreased four percent to total 23.05 million barrels. On a per share basis (basic), Zargon's 2012 year end proved and probable oil and liquids reserves were 0.77 barrels, a six percent decrease over the prior year. The proved and probable oil and liquids reserves estimate includes 4.39 million barrels of probable undeveloped oil equivalent reserves assigned using a 10 percent incremental reservoir recovery factor to the ASP tertiary oil recovery project at Little Bow, Alberta.-- Zargon's 2012 year end proved and probable natural gas reserves decreased 21 percent to total 48.82 billion cubic feet, due to a combination of production and 7.02 billion cubic feet of negative reserve adjustments relating to economic factors. Zargon's business is completely focused on oil exploitation, and Zargon has not drilled a gas well since the fall of 2010. Over 90 percent of Zargon's proved and probable discounted cash flows (PVBT 10%) are attributable to oil and liquids production.-- Zargon's oil properties are characterized by pressure supported reservoirs (waterflood or natural aquifers) that provide long-life, low- decline oil production. Consequently, Zargon's proved developed producing oil and liquids reserve life index is 6.9 years and Zargon's proved and probable producing oil and liquids reserve life index is 9.3 years. These low decline oil reserves are well suited for Zargon's dividend paying business model.-- Zargon's year end 2012 "produce-out" net asset value is calculated to be $12.79 per basic share. This estimate reflects McDaniel's estimate of the Zargon properties' proved and probable future cash flow using a before tax 10 percent discount rate and forecast prices and costs plus an independent appraisal of Zargon's undeveloped land less an allowance for the year end bank debt, the full future face value of the $57.5 million convertible debenture and working capital deficiencies. On a proved and probable developed producing reserve assignment basis, Zargon's "produce-out" net asset value is calculated to be $10.64 per basic share. The corresponding proved developed producing net asset value estimate is $7.75 per basic share.