Condor Announces 2017 Third Quarter Results
CALGARY, November 14, 2017 – Condor Petroleum Inc. (“Condor” or the “Company”) (TSX: CPI), a Canadian based oil and gas company focused on exploration and production activities in Turkey and Kazakhstan, is pleased to announce the release of its unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017, together with the related management’s discussion and analysis. These documents will be made available under Condor’s profile on SEDAR at www.sedar.com and on the Condor website at www.condorpetroleum.com. All financial amounts in this news release are presented in Canadian dollars, unless otherwise stated.
Q3 2017 Highlights
- Construction of the Poyraz Ridge gas processing facility in Turkey has been completed. Precommissioning activities have successfully been performed, introducing gas to the various processing components.
- Construction of the 16 km Poyraz Ridge sales gas pipeline has also been completed and is undergoing acceptance testing. Commercial production with initial rates targeting 10 MMscf/day is expected to commence in the fourth quarter of 2017.
- The Poyraz 3 and Poyraz West 4 development wells in Turkey have been completed and tied into the processing facilities.
- The Yakamoz 1 exploration well in Turkey was drilled to a total depth of 2,250 meters encountering numerous gas shows while drilling. Though the well was abandoned without testing, post-well remapping of the Yakamoz prospect indicates the well was drilled off-structure and side-tracking alternatives are being evaluated.
- Production from Shoba and Taskuduk in Kazakhstan averaged 457 bopd for the three months and 410 bopd for the nine months ended September 30, 2017 and the operating netback which is defined as crude oil sales revenue less production costs, royalty expense and transportation and selling expense, averaged $19.79 per barrel in the third quarter of 2017 and $18.47 per barrel for the nine months ended September 30, 2017.
- The Company has referred the Zharkamys exploration contract extension case to the Supreme Court of Kazakhstan and the hearing is scheduled to commence on November 29, 2017. The ongoing court proceedings related to Zharkamys do not affect the Company’s Shoba and Taskuduk oilfields which are each governed by separate production contracts. During the first quarter of 2017, the Company established and received funds from a USD 10.0 million secured non-revolving credit facility which bears interest at 14% and matures on January 31, 2020 and issued to the lender a warrant certificate exercisable into one million common shares of Condor at $2.35 per share on or before January 31, 2020.
- The Company recorded net loss of $2.5 million for the three months ended September 30, 2017 (2016: $1.7 million) and $66.5 million for the nine months ended September 30, 2017 (2016: $8.7 million) which includes $56.6 million of exploration and evaluation expense pertaining to the derecognition of the Zharkamys contract in the first quarter of 2017.
The Shoba and Taskuduk oilfields in Kazakhstan produced 42,059 barrels of oil or an average of 457 bopd for the three months ended September 30, 2017 and 111,806 barrels of oil or an average of 410 bopd for the nine months ended September 30, 2017. For the three and nine months ended September 30, 2016 the Company produced 5,903 barrels of oil or an average of 64 bopd. Production increased as there was no production in 2016 until mid-September when production resumed at Shoba following the signing of the Shoba production contract. In Turkey, construction of the Poyraz Ridge gas processing facility is complete. Construction of the 6” sales gas pipeline is also complete after receiving approvals for all the surface right-of-way access rights. Production is expected to commence in the fourth quarter of 2017 at an initial rate of 10 MMscf/day following formal commissioning of the facility and the pipeline and obtaining the customary government approvals. The Poyraz 3 and Poyraz West 4 development wells in Turkey have been completed and tied into the processing facilities. The Yakamoz 1 exploration well in Turkey was drilled to a total depth of 2,250 meters to test a “new” sub thrust-fold play type located 2 km from the Poyraz Ridge gas field. The well confirmed that an active petroleum system extends to the north and west of Poyraz Ridge and, as predicted, numerous gas shows proved an extensive fracture system prevails along the Miocene-Eocene sub-thrust trend. Though Yakamoz 1 was abandoned without testing, the well provided critical structural and stratigraphic information that can be tied back to the regional 2D seismic as it relates to trap, reservoir and seal within this fairway. Based on the new velocity-depth information, re-mapping of the Yakamoz prospect concluded the well was drilled offstructure. Condor is currently integrating this data into a revised geological model with a view to side-tracking the Yakamoz 1 well in addition to high grading prospective areas for future 3D seismic and additional exploration drilling along and sub-parallel to this trend. The net loss for the nine months ended September 30, 2017 of $66.5 million (2016: $8.7 million) includes $56.6 million of exploration and evaluation expense pertaining to the derecognition of the Zharkamys contract in the first quarter of 2017 and $1.6 million of exploration and evaluation expense related to the Yakamoz 1 well. Cash used in operations amounted to $1.5 million for the three months ended September 30, 2017 compared to $2.7 million in the third quarter of 2016. Capital expenditures for the three months ended September 30, 2017 amounted to $2.8 million (2016: $6.6 million) and for both periods relates mainly to Poyraz Ridge field development in Turkey.
Zharkamys exploration contract
The Company’s Zharkamys exploration contract (“Zharkamys Contract”) with the Ministry of Energy of the Government of Kazakhstan (“Ministry”) was due to expire on December 14, 2016. Prior to this date, the Kazakhstan Chamber of International Commerce and subsequently the Kazakhstan Civil Court (“Civil Court”) confirmed that a force majeure event had occurred which, under Kazakhstan subsurface use law, can be the basis for the Zharkamys Contract validity period to be extended for a period of 630 days. In May 2017, the Kazakhstan Court of Appeal (“Court of Appeal”), pursuant to an appeal filed by the Ministry, released its ruling dated April 14, 2017 that the force majeure event is not recognized and reversed the decision of the Civil Court. As a result of the Court of Appeal ruling, there is uncertainty regarding the Company’s future legal rights to have the Zharkamys Contract extended and the related exploration and evaluation assets were derecognized. The Company has referred the case to the Supreme Court of Kazakhstan (“Supreme Court”), the country’s highest legal body and the hearing is scheduled to commence on November 29, 2017. A positive ruling by the Supreme Court to uphold the Civil Court force majeure ruling would likely allow the Company to apply to the Ministry for the 630 day extension of Zharkamys Contract. Conversely, a decision by the Supreme Court to uphold the findings of the Court of Appeal would likely result in the Zharkamys Contract reverting back to the Ministry. The on-going court proceedings do not affect the Company’s production rights for the Shoba and Taskuduk oilfields which are each governed by separate production contracts.
During the first quarter of 2017 the Company established and received funds from a USD 10.0 million secured non-revolving credit facility which bears interest at 14% and matures on January 31, 2020 (“Credit Facility”). Interest for the first year of the Credit Facility is due on January 31, 2018 followed by eight payments of USD 1.25 million of principal plus interest due quarterly in arrears commencing March 31, 2018. Condor also issued to the lender a warrant certificate exercisable into one million common shares of Condor at $2.35 per share on or before January 31, 2020. The loan proceeds are available to fund capital expenditures related to drilling, infrastructure and workovers at Poyraz Ridge and for general corporate purposes.
NON-GAAP FINANCIAL MEASURES
The Company refers to “operating netback” in this news release, a term with no standardized meaning as prescribed by GAAP and which may not be comparable with similar measures presented by other issuers. This additional information should not be considered in isolation or as a substitute for measures prepared in accordance with GAAP. Operating netback is calculated as crude oil sales revenue less production costs, royalty expense and transportation and selling expense on a dollar basis and divided by the sales volume for the period on a per barrel basis. This non-GAAP measure is commonly used in the oil and gas industry to assist in measuring operating performance against prior periods on a comparable basis and has been presented in order to provide an additional measure for analyzing the Company’s crude oil sales on a per barrel basis and ability to generate funds