Condor Announces 2020 Second Quarter Results
CALGARY, August 12, 2020 – 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 six months ended June 30, 2020 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. Readers are invited to review the latest corporate presentation available on the Condor website. All financial amounts in this news release are presented in Canadian dollars, unless otherwise stated.
Q2 2020 Highlights
On April 22, 2020, the Government of Kazakhstan signed the Shoba and Taskuduk production contract addendums and no further approvals are required in order to complete the sale of the two properties. The transaction is scheduled for closing as soon as practical once the current novel coronavirus (“COVID-19”) pandemic related restrictions on travel and office closures in Kazakhstan have been eased and the re-registration of the properties and equipment to the Buyer can be completed.
Discussions continue with the Government of Uzbekistan for the Company to secure an agreement to operate five producing gas fields and associated gathering pipelines and gas treatment infrastructure. However, progress has been hampered by COVID-19 travel restrictions.
Two well workovers were performed in Turkey during the second quarter of 2020, increasing production to an average of 326 boepd for the past thirty days compared to an average of 107 boepd for the three months ended June 30, 2020.
The Company is in discussions for farm-in partners to drill the Yakamoz prospect in Turkey and multiple prospects in the Zharkamys West 1 territory in Kazakhstan.
The Company has taken a number of measures to protect the safety and health of its personnel, contractors and suppliers during the COVID-19 pandemic and is well positioned for the challenges of the current business environment, has a cash position of $16.1 million as of June 30, 2020, no debt, and positive netbacks from natural gas sales and no capital commitments in Turkey.
Continuing operations in Turkey to date have not been materially affected by the COVID-19 pandemic although production decreased to an average of 107 boepd for the second quarter of 2020 from 293 boepd in 2019 due mainly to a combination of natural declines and forty two days of restricted production related to a refrigeration unit compressor failure at the processing facility. Corresponding sales decreased to $0.5 million for second quarter of 2020 from $1.3 million in 2019 and the net loss increased to $2.7 million for second quarter of 2020 from $1.4 million in 2019.
Shoba and Taskuduk Sale
In September 2019, the Company entered into a binding agreement to sell its 100% interests in the Shoba production contract, Taskuduk production contract and associated field equipment for total proceeds of USD 24.6 million (“Sale Agreement”). The buyer (“Buyer”) paid USD 3.8 million in October 2019, USD 18.7 million in January 2020 and USD 0.6 million in May 2020. The remaining USD 1.5 million is due at Closing and will be reduced by an estimated USD 0.7 million for the net revenues minus operating costs from the properties which attribute to the Buyer from the effective date of December 25, 2019 until the Closing date.
On April 22, 2020, the Government of Kazakhstan signed the Shoba and Taskuduk production contract addendums and no further approvals are required in order to complete the sale of the two properties. At the request and expense of the Buyer, production was immediately shut in and there will be no further production or sales until Closing has occurred. The transaction is scheduled for closing as soon as practical once the current COVID-19 related restrictions on travel and office closures in Kazakhstan have been eased and the re-registration of the properties and equipment to the Buyer can be completed and the parties are able to conduct the customary Closing and commercial handover procedures.
Production Contract Negotiations with the Government of Uzbekistan
Discussions continue with the Government of Uzbekistan for the Company to secure an agreement to operate five producing gas fields and associated gathering pipelines and gas treatment infrastructure. The Company has submitted and presented a detailed feasibility study and economic analysis for the five producing gas fields to the Government of Uzbekistan and an independent reserves volume evaluation has been completed. An environmental baseline study is currently being performed by an independent contractor. In parallel, the Company is also pursuing the possibility of acquiring exploration acreage in areas surrounding the respective gas fields. Material progress on these initiatives has been hampered by the recent COVID-19 travel and office closure restrictions.
If executed, the production contract is expected to include five producing gas fields of interest, associated gathering pipelines, and gas treatment infrastructure. The fiscal and operating terms expected to be defined in the production contract include royalty rates, cost recovery, allocation of profits, gas marketing and pricing, government participation, governance and steering committee structures, baseline production levels and reimbursement methodology.
Continuing and discontinued operations classification
Following the execution of the agreement for the Sale Transaction, as of September 30, 2019 the related Shoba and Taskuduk net assets and liabilities have been reclassified to assets and liabilities held for sale and the respective results of operations are presented as discontinued operations for all current and prior periods throughout this news release. For further information relating to discontinued operations, please refer to the Company’s Financial Statements.
The Company produces natural gas and associated condensate in Turkey. To date, operations have not been materially affected by the COVID-19 pandemic although production decreased to an average of 107 boepd and an operating netback (note 1) of $(7.31) per boe for the second quarter of 2020 (Q2 2019: produced an average of 293 boepd and an operating netback (note 1) of $29.62 per boe) and cash used in continuing operations increased to $2.7 million for the second quarter of 2020 versus $0.9 million for the same period in 2019. The production decrease is due to a combination of natural declines and 42 days of restricted production caused by a compressor failure at the processing facility. The processing facility was returned to full service in June 2020.
Two well workovers were completed during the second quarter of 2020 that perforated new producing intervals in each well. This increased average production to 326 boepd for the past 30 days compared to an average of 107 boepd for the three months ended June 30, 2020. Additional workover opportunities and new infill drilling locations are being generated.
The Yakamoz 1 side-track well has been matured to a drill-ready state and is targeting up-dip targets in both the proven Miocene and Upper Eocene reservoirs, in addition to the deeper Middle to lower Eocene reservoirs, which have not yet been tested. The Company previously drilled Yakamoz 1 and encountered numerous gas shows while drilling. A successful Yakamoz 1 side-track well would be tied 2 km into the existing Poyraz Ridge gas plant for processing and onward sales. The Company is discussing a farm-in with an interested party.
Selected Financial Results of Continuing Operations
|For the three months ended June 30|
|($000’s except per share amounts)||2020||2019|
|Natural gas and condensate sales||482||1,296|
|Cash used in continuing operations||(2,735)||(902)|
|Net loss from continuing operations||(2,756)||(2,243)|
|Net loss from continuing operations per share (basic and diluted)||(0.06)||(0.05)|
|For the six months ended June 30|
|($000’s except per share amounts)||2020||2019|
|Natural gas and condensate sales||1,216||3,177|
|Cash used in continuing operations||(4,022)||(721)|
|Net loss from continuing operations||(4,354)||(4,194)|
|Net loss from continuing operations per share (basic and diluted)||(0.10)||(0.10)|
Sales and operating netback (note 1)
|For the three months ended June 30
|Transportation and selling||(138)||(2)||(140)||(131)||–||(131)|
|Operating netback (note 1)||(69)||2||(67)||744||–||744|
|Transportation and selling||(15.25)||(16.00)||(15.26)||(5.21)||–||(5.21)|
|Operating netback (note 1)||(7.62)||16.00||(7.31)||29.62||–||29.62|
|Sales volume (boe)||9,050||125||9,175||25,123||–||25,123|
|For the six months ended June 30|
|Transportation and selling||(282)||(9)||(291)||(252)||(20)||(272)|
|Operating netback (note 1)||142||19||161||1,911||59||1,970|
|Transportation and selling||(13.31)||(18.07)||(13.42)||(4.44)||(19.98)||(4.71)|
|Operating netback (note 1)||6.70||38.16||7.42||33.70||58.94||34.13|
|Sales volume (boe)||21,188||498||21,686||56,719||1,001||57,720|
Note 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” in this news release. The calculation of operating netback is aligned with the definition found in the Canadian Oil and Gas Evaluation Handbook.
Results of Discontinued Operations
As noted above, the Company’s subsidiary Falcon entered into a binding agreement to sell Falcon’s 100% interests in the Shoba and Taskuduk production contracts and associated field equipment in Kazakhstan and accordingly the related activities are presented as discontinued operations. Upon Closing, the net revenues less operating costs generated from the production and sale of crude oil from the oilfields will be attributed to the Buyer from the effective date of December 25, 2019 until the Closing date as an adjustment to the purchase consideration.
In April 2020, at the request and expense of the Buyer, production was shut in and there will be no further production or sales until Closing has occurred. Accordingly, both production and sales decreased in 2020 as compared to 2019. Oil production decreased 47% to 55,961 barrels or an average of 307 bopd for the six months ended June 30, 2020 as compared to 105,575 barrels or an average of 583 bopd in 2019. Crude oil sales decreased to $2.0 million or $35.72 per bbl for the six months ended June 30, 2020 from $3.9 million or $37.44 per bbl in 2019.
No depletion and depreciation expense was recognized for the six months ended June 30, 2020 as the Company ceased depletion on assets held for sale on September 23, 2019.
In March 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. Responses to the spread of COVID-19 have resulted in various disruptions to business operations and an increase in economic uncertainty, with more volatile commodity prices and currency exchange rates. The Company is well positioned for the challenges of the current business environment, has a cash position of $16 million as of June 30, 2020, no debt, and positive netbacks from natural gas sales and no capital commitments in Turkey. Please see the Company’s Management Discussion and Analysis for the three and six months ended June 30, 2020 for further information on the potential risks and impacts to the Company related to COVID-19.
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 sales less royalties, production costs and transportation and selling on a dollar basis and divided by the sales volume for the period on a per barrel of oil equivalent basis. The reconciliation of this non-GAAP measure is presented in the “Financial Results” section of this news release. 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 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 timing and ability to receive the remaining amount due at Closing and the timing and ability to complete the Closing of the Shoba and Taskuduk Sale Agreement; the timing and ability to pursue other growth opportunities; the timing and ability to increase natural gas production and realize commercial gas flow rates for the lower permeability reservoirs; the timing and ability to execute a production contract with the Government of Uzbekistan under favorable terms, or at all, the fields and exploration areas to be included and the terms and conditions of the production contract including but not limited to royalty rates, cost recovery, profit allocation, gas marketing and pricing, government participation, governance, baseline production levels and reimbursement methodology; the timing and ability to drill new wells and the ability of the drilled wells to become producing wells; projections and timing with respect to crude oil, natural gas and condensate production; expected markets, prices costs and operating netbacks for future oil, gas and condensate sales; the timing and ability to obtain various approvals and conduct the Company’s planned exploration and development activities; the timing and ability to access oil and gas pipelines; the timing and ability to access domestic and export sales markets; anticipated capital expenditures; forecasted capital and operating budgets and cash flows; anticipated working capital; sources and availability of financing for potential budgeting shortfalls; the timing and ability to obtain future funding on favorable terms, if at all; general business strategies and objectives; the timing and ability to obtain exploration contract, production contract and operating license extensions; the timing and ability to obtain a farm-in partner for the Zharkamys Contract; the timing and ability to obtain a farm-in partner for Yakamoz; the timing and ability to tie the Yakamoz field into the Company’s existing gas plant; the potential for additional contractual work commitments; the ability to meet and fund the contractual work commitments; the satisfaction of the work commitments; the results of non-fulfillment of work commitments; projections relating to the adequacy of the Company’s provision for taxes; the timing and ability to collect VAT; and treatment under governmental regulatory regimes and tax laws.
This news release also includes forward-looking information regarding COVID-19 including, but not limited to: travel restrictions including shelter in place orders, curfews and lockdowns which may impact the timing and ability to complete the Sale Agreement Closing, the timing and ability of Company personnel, suppliers and contractors to travel internationally, travel domestically and to access or deliver services, goods and equipment to the fields of operation; the risk of shutting in or reducing production due to travel restrictions, Government orders, crew illness, and the availability of goods, works and essential services for the fields of operations; and decreases in the demand for oil and gas; decreases in natural gas prices in Turkey.
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:
USD United States dollars
bbl Barrels of oil
bopd Barrels of oil per day
boe Barrels of oil equivalent *
boepd Barrels of oil equivalent per day
Mscf Thousand standard cubic feet
* Barrels of oil equivalent (“boe”) are derived by converting gas to oil in the ratio of six thousand standard cubic feet (“Mscf”) of gas to one barrel of oil based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mscf to 1 barrel, utilizing a conversion ratio at 6 Mscf to 1 barrel may be misleading as an indication of value, particularly if used in isolation.
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.