Zargon Oil & Gas Ltd. reported unaudited earnings and production results for the second quarter and six months ended June 30, 2017. For the quarter, the company reported gross petroleum and natural gas sales of CAD 9.40 million against CAD 13.53 million for the same period a year ago. Funds flow from operating activities was CAD 1.14 million or CAD 0.04 per basic share against CAD 3.56 million or CAD 0.12 per basic share for the same period a year ago. The year over year decrease in funds flow is primarily due to the sale of properties in the third quarter of 2016. Cash flows used in operating activities were CAD 0.59 million against cash flows from operating activities of CAD 1.18 million for the same period a year ago. Net loss was CAD 1.71 million or CAD 0.06 per basic share against CAD 5.27 million or CAD 0.17 per basic share for the same period a year ago. Net capital expenditures were CAD 2.13 million against CAD 1.26 million for the same period a year ago. Second quarter 2017 capital expenditures were CAD 2.13 million and were primarily allocated to oil exploitation costs relating to facility, waterflood implementation and well reactivation expenditures. These second quarter expenditures included CAD 0.50 million of expenditures related to the Little Bow ASP project (CAD 0.15 million exploitation and CAD 0.35 million chemical costs).

For the six months, the company reported gross petroleum and natural gas sales of CAD 19.09 million against CAD 23.15 million for the same period a year ago. Funds flow from operating activities was CAD 2.64 million or CAD 0.09 per basic share against CAD 3.17 million or CAD 0.10 per basic share for the same period a year ago. Cash flows from operating activities were CAD 1.94 million against CAD 3.25 million for the same period a year ago. Net loss was CAD 2.25 million or CAD 0.07 per basic share against CAD 14.09 million or CAD 0.46 per basic share for the same period a year ago. Net capital expenditures were CAD 4.64 million against CAD 3.73 million for the same period a year ago. Net debt was CAD 36.06 million as at June 30, 2017 against CAD 122.26 million as at June 30, 2016.

For the quarter, the company reported oil and liquids average daily production of 1,921 bbl/d against 3,413 bbl/d for the same period a year ago. Natural gas average daily production was 3.47 mmcf/d against 3.58 mmcf/d for the same period a year ago. Second quarter 2017 production averaged 2,500 barrels of oil equivalent per day, a 3% decrease from the preceding quarter rate of 2,579 barrels of oil equivalent per day and a 38% decline from the second quarter 2016 production rate of 4,010 barrels of oil equivalent per day that had included its Southeast Saskatchewan and certain Alberta assets that were sold in the third quarter of 2016.

For the six months, the company reported oil and liquids average daily production of 1,968 bbl/d against 3,458 bbl/d for the same period a year ago. Natural gas average daily production was 3.43 mmcf/d against 3.81 mmcf/d for the same period a year ago. For the six months, production averaged 2,540 barrels of oil equivalent per day against 4,093 barrels of oil equivalent per day for the same period a year ago.

For the remainder of 2017, Zargon is budgeting CAD 3.16 million of capital expenditures that is anticipated to completely offset the impact of Zargon's base production decline rate of less than 10% per year. The capital program will be focused on the Little Bow non-ASP waterflood modifications and reactivations, Truro, North Dakota waterflood modifications, Bellshill Lake pumping oil well optimizations and Little Bow ASP project polymer costs. The remaining 2017 capital program does not include the drilling of any of the 11 undeveloped oil exploitation wells recognized in its McDaniel 2016 year end reserve report, or the recommencement of Little Bow alkaline and surfactant injections. These growth capital expenditures will require additional funding, pursuant to strategic alternatives initiative.

In a December 12, 2016 capital budget press release, Zargon provided annual 2017 guidance levels of 2,500 barrels of oil equivalent per day. First half 2017 production volumes of 2,540 barrels of oil equivalent per day exceeded guidance levels, and similarly, the company anticipates to exceed the 2,500 barrels of oil equivalent per day guidance levels for the remainder of the year. These guidance levels are predicated on its unchanged CAD 7.80 million 2017 capital program, of which the first half expenditures of CAD 4.64 million included a disproportionate level of facility, waterflood implementation and well reactivation expenditures that will provide additional production volumes in the second half of 2017.