Condor Announces 2017 Year End Results
CALGARY, March 20, 2018 – 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 Consolidated Financial Statements for the year ended December 31, 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.
Poyraz Ridge natural gas production commenced in mid-December 2017 and 360.9 MMscf of gas has been produced during start-up and commissioning activities through February 2018 which generated approximately $2.5 million in revenue and $1.8 million in operating netback at an average sales price of $7.15 per Mscf.
The Company’s average overall production rate of 1,506 boepd for the past thirty days includes 402 bopd from Kazakhstan oil and 1,104 boepd from Turkey gas and is approximately four times the Company’s 2017 average rate of 423 boepd.
Crude oil sales in the fourth quarter of 2017 yielded an operating netback of $22.40 per barrel and representing an increase of 16% from the fourth quarter of 2016.
The after tax NPV10 value of the Company’s Proved reserves increased 9% to USD 30.1 million as of December 31, 2017 from USD 27.7 million as of December 31, 2016 and the after tax NPV10 value of the Company’s Proved plus Probable reserves increased 8% to USD 68.1 million as of December 31, 2017 from USD 63.0 million as of December 31, 2016.
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 developed. Deeper potential reservoirs are also being matured.
The court proceedings related to the Company’s Zharkamys exploration contract (“Zharkamys Contract”) with the Ministry of Energy of the Government of Kazakhstan (“Ministry”) continue. On March 1, 2018 the Kazakhstan Civil Court (“Civil Court”) released its ruling which confirmed that a force majeure event had occurred. The Ministry has the right to appeal the ruling within 30 calendar days. If the Ministry does not appeal the Civil Court ruling will enter into legal force and would allow the Company to submit an addendum to the Zharkamys Contract to the Ministry which, after ratification, would extend the exploration period by 630 days.
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 a net loss of $66.7 million for the year ended December 31, 2017 (2016: $11.9 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. On January 1, 2018 the reference natural gas sales price in Turkey set by the state owned pipeline transportation company BOTAŞ was increased by approximately 14% to 800 TL per thousand cubic meter, or approximately $7.63 per Mscf at the current exchange rate of 2.97 TL/CAD.
The Company produces crude oil in Kazakhstan and natural gas in Turkey and overall production increased 186% to 154,429 barrels of oil equivalent or an average of 423 boepd in 2017 from 53,954 barrels of oil equivalent or an average of 148 bopd in 2016. Production increased mainly due to realizing a full year of crude oil production in 2017 while in 2016 production commenced in September at Shoba and in October at Taskuduk following the signing of the respective production contracts. In addition, the Company commenced natural gas production in Turkey in mid-December of 2017. Gas production rates were initially restricted to allow for optimization of the facility equipment settings and de-bottlenecking activities during start-up operations. The facility transitioned into routine operations mode in February 2018.
Capital expenditures in 2017 amounted to $19.3 million (2016: $16.7 million) and relate mainly to development activities in Turkey including construction of the Poyraz Ridge gas plant, construction of a 16 km sales gas pipeline and development well drilling, completions and tie-ins. Poyraz Ridge natural gas production commenced in mid-December 2017 and has since transitioned the Company into positive cash flow. During start-up and commissioning activities from mid-December 2017 through February 2018 the Company produced 360.9 MMscf of gas which generated $2.5 million in revenue, taking advantage of Turkey’s strong gas prices and favourable fiscal regime. Gas production has averaged 1,104 boepd during the past thirty days. Up to two additional development wells could be drilled in 2018 to offset natural decline rates.
A four well Poyraz Ridge drilling program was completed in January 2017, which consisted of three appraisal and development wells (P3, P5, and PW2) and one exploration well (PW5) targeting the footwall compartment lying to the north of the field. PW5 did not flow at commercial rates and is undergoing additional evaluation based on newly reprocessed 3D seismic inversion data and an updated geologic model. A fifth well (PW4) was drilled in May 2017 and the fluids used during completion operations are currently being recovered so that PW4 gas production can begin. Three legacy wells (P1, P2, and PW1) which were drilled from 2011 to 2014 were also tied into the gathering system and connected to the gas plant.
The Yakamoz 1 exploration well in Turkey was drilled to a total depth of 2,250 meters in July 2017 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. Based on the new velocity-depth information, re-mapping of the Yakamoz prospect concluded the well was drilled off-structure. This data coupled with recent reprocessing of the original 2D seismic data has been integrated into a revised geological model with a view to side-tracking the Yakamoz 1 well, targeting both the proven primary Miocene & Upper Eocene reservoirs and the deeper (2500+ meters) untested secondary Middle–Lower Eocene reservoirs. The reprocessed seismic data has significantly improved both data quality and imaging of both structure and stratigraphy and has identified two potential up-dip locations to the southwest and northwest of the Yakamoz 1 well, each with an additional 200 meters of vertical section.
The net loss for the year ended December 31, 2017 of $66.7 million (2016: $11.9 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 operating activities amounted to $8.2 million for the year ended December 31, 2017 compared to $9.2 million in 2016.
The Zharkamys Contract was due to expire on December 14, 2016. Prior to this date, the Kazakhstan Chamber of International Commerce and subsequently the 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 that the force majeure event was not recognized and reversed the decision of the Civil Court. As a result of the Court of Appeal ruling there was uncertainty regarding the Company’s legal rights to extend the Zharkamys Contract and the related exploration and evaluation assets in the amount of $56.6 million were derecognized as at March 31, 2017.
The Company referred the case to the Kazakhstan Supreme Court (“Supreme Court”) and in November 2017 the Supreme Court released its ruling which overturned both the Civil Court and the Court of Appeal rulings and referred the case back to the Civil Court for further review by a new panel of judges.
On March 1, 2018 the Civil Court released its ruling which confirmed that the force majeure event had occurred. The Ministry has the right to appeal the Civil Court ruling within 30 calendar days following the issuance of the ruling. If the Ministry does not appeal within the mandated period, the Civil Court ruling will enter into legal force and would allow the Company to submit an addendum to the Zharkamys Contract to the Ministry which, after ratification, would extend the exploration period by 630 days.
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 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 of oil equivalent 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 to analyze the Company’s crude oil and natural gas sales on a per barrel of oil equivalent basis and ability to generate funds.
Certain statements in this news release constitute forward-looking statements under applicable securities legislation. Such statements are generally identifiable by the terminology used, such as “anticipate”, “appear”, “believe”, “intend”, “expect”, “plan”, “estimate”, “budget”, “outlook”, “scheduled”, “may”, “will”, “should”, “could”, “would”, “in the process of” or other similar wording. Forward-looking information in this news release includes, but is not limited to, information concerning: the ability of the drilled wells to become producing wells; projections and timing with respect to crude oil and natural gas production; expected markets and prices for future oil and gas sales; the timing and ability to obtain various approvals for the Company’s exploration and development activities; the timing and ability to access oil and gas pipelines and oil and gas domestic and export sales markets; anticipated capital expenditures and cash flows; sources and availability of financing for potential budgeting shortfalls; the timing and ability to obtain future funding on favorable terms; general business strategies and objectives; possible outcomes regarding the Zharkamys Contract including the possibility that the term may be extended or, conversely, that it may revert back to the Ministry; and the timing and ability to obtain exploration contract, production contract and operating license extensions.
By its very nature, such forward-looking information requires Condor to make assumptions that may not materialize or that may not be accurate. Forward-looking information is subject to known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such information. Such risks and uncertainties include, but are not limited to: regulatory changes; the timing of regulatory approvals; the risk that actual minimum work programs will exceed the initially estimated amounts; the results of exploration and development drilling and related activities; imprecision of reserves estimates and ultimate recovery of reserves; historical production and testing rates may not be indicative of future production rates, capabilities or ultimate recovery; the historical composition and quality of oil and gas may not be indicative of future composition and quality; general economic, market and business conditions; industry capacity; uncertainty related to marketing and transportation; competitive action by other companies; fluctuations in oil and natural gas prices; the effects of weather and climate conditions; fluctuation in interest rates and foreign currency exchange rates; the ability of suppliers to meet commitments; actions by governmental authorities, including increases in taxes; decisions or approvals of administrative tribunals and the possibility that government policies or laws may change or government approvals may be delayed or withheld; changes in environmental and other regulations; risks associated with oil and gas operations, both domestic and international; international political events; and other factors, many of which are beyond the control of Condor. Capital expenditures may be affected by cost pressures associated with new capital projects, including labor and material supply, project management, drilling rig rates and availability, and seismic costs.
These risk factors are discussed in greater detail in filings made by Condor with Canadian securities regulatory authorities including the Company’s Annual Information Form, which may be accessed through the SEDAR website (www.sedar.com).
Readers are cautioned that the foregoing list of important factors affecting forward-looking information is not exhaustive. The forward-looking information contained in this news release are made as of the date of this news release and, except as required by applicable law, Condor does not undertake any obligation to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise. The forward-looking information contained in this news release is expressly qualified by this cautionary statement.
The following is a summary of abbreviations used in this news release:
bopd Barrels of oil per day
boepd Barrels of oil equivalent per day
scf Standard cubic feet
NPV Net present value
CAD Canadian dollars
TL Turkish Lira
USD United States dollars
The TSX does not accept responsibility for the adequacy or accuracy of this news release.
For further information, please contact Don Streu, President and CEO or Sandy Quilty, Vice President of Finance and CFO at 403-201-9694.
1 Operating netback is a non-GAAP measure and is a term with no standardized meaning as prescribed by GAAP and may not be comparable with similar measures presented by other issuers. See non-GAAP financial measures. The calculation of operating netback is aligned with the definition found in the Canadian Oil and Gas Evaluation Handbook.