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, 2019 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.
Q3 2019 Highlights
- The Company’s wholly owned
subsidiary, Falcon Oil & Gas Ltd (“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 for USD 24.6 million (CAD 32.7 million at the current
exchange rate of 1.33).
- On November 12, 2019 Condor signed
a Heads of Agreement with the Ministry of Energy of the Government
of Uzbekistan which provides the Company with a 120 day exclusive
window to negotiate a definitive production sharing agreement for
five producing gas fields.
- The Company has submitted an
extension application to the Ministry of Energy of the Government
of Kazakhstan and expects the exploration period to the Zharkamys
Contract will be extended by 630 days commencing in late 2019.
- Contract preparations are on-going
with a farm-in partner to drill the Yakamoz 1 side-track well and a
subsequent appraisal well in Turkey. A non-binding letter of intent
and term sheet has been signed by both parties.
- The reference natural gas sales
prices in Turkey set by BOTAŞ, the state owned pipeline
transportation company, were increased in both July and August of
2019 resulting in a Canadian Dollar terms price of $10.20 per Mscf
as of November 1, 2019.
Shoba and Taskuduk Sale
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 for USD 24.6
million, or CAD 32.7 million at the current exchange rate of 1.33
(the “Sale Transaction”). The buyer is a non-listed international
oil and gas group and has paid an initial deposit of USD 3.8
million (CAD 5.1 million at the current exchange rate of 1.33). The
remaining amount (“Completion Payment”) is due upon closing of the
Sale Transaction (“Closing”), which is expected in the first
quarter of 2020. The transaction requires various consents and
confirmations from the Government of Kazakhstan and is subject to
the satisfaction of certain commercial conditions that are
customary for a transaction of this nature.
The Company intends to use the sale proceeds to:
pursue larger value growth opportunities within the region; pay
down amounts owing under its existing credit facility; conduct
additional activities to increase natural gas production in Turkey;
and resume Kazakhstan exploration activities once the 630 day
exploration extension is formalized for the Zharkamys Contract.
Falcon remains the owner and operator of the
oilfields until Closing occurs. At Closing, the Buyer will be
entitled to reduce the Completion Payment by the amount of net
revenues less costs generated from the production and sale of crude
oil from the oilfields commencing sixty days following confirmation
that the Buyer has paid the Deposit, provided a proof of funds
letter demonstrating available funds to pay the Completion Payment
and applied to the relevant authorities for the required Government
of Kazakhstan consents.
Heads of Agreement with the Government
of Uzbekistan
On November 12, 2019 Condor signed a Heads of
Agreement (“HoA”) with the Ministry of Energy of the Government of
Uzbekistan (“Uzbekistan Ministry”) which provides the Company a 120
day window to negotiate a definitive production sharing agreement
(“PSA”) with the Uzbekistan Ministry. The PSA, if executed, would
include five producing gas fields and the associated gathering
pipelines and gas treatment infrastructure along with the right to
explore and develop certain exploration areas surrounding the
current producing gas fields. The fiscal and operating terms
expected to be defined in the PSA include royalty rates, cost
recovery, profit splits, gas marketing and pricing, governance and
steering committee structures and acquisition payments for the
immoveable property in the fields.
Don Streu, President and CEO commented “We are
excited about the potential investment opportunity in Uzbekistan.
The country has been undergoing significant economic, legal, tax
and social reforms under the guidance of President Shavkat
Mirziyoyev and is ranked by the World Bank as one of the 20
economies where business climates have improved the most over the
past year. It’s the 16th largest gas producer in the world with
established export routes to Europe and China. We firmly believe
that our vast regional experience, application of new technologies
and innovations can be successfully deployed in Uzbekistan to
significantly increase existing field production.”
Zharkamys 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. Pursuant to an appeal filed by the Ministry, the
Kazakhstan Court of Appeal (“Court of Appeal”) ruled in May 2017
that the force majeure event was not recognized and reversed the
decision of the Civil Court. The Company referred the case to the
Kazakhstan Supreme Court (“Supreme Court”) and in November 2017 the
Supreme Court ruling 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. In March 2018, the Civil
Court ruling confirmed that the force majeure event had occurred.
In April 2018, the Ministry appealed the Civil Court ruling and in
May 2018 the Court of Appeal ruling upheld that the force majeure
event had occurred. The Ministry did not appeal to the Supreme
Court and the Company subsequently submitted an application to the
Ministry and is in the process of preparing and seeking approvals
for the various development projects required for the 630 day
extension.
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 results of Shoba and
Taskuduk 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 Note 2 to the Company’s unaudited interim condensed
consolidated financial statements for the three and nine months
ended September 30, 2019 and 2018.
Continuing Operations
Contract preparations are on-going with a
farm-in partner to drill the Yakamoz 1 side-track well and a
subsequent appraisal well in Turkey. A non-binding letter of intent
and term sheet has been signed by both parties. The Company
previously drilled Yakamoz 1 and encountered numerous gas shows
while drilling. A revised geological model has been created by
integrating the Yakamoz 1 well data with recently reprocessed
seismic data and has identified up-dip targets for the side-track.
These side-track locations target both the proven Miocene and Upper
Eocene reservoirs, in addition to the deeper Middle to lower Eocene
reservoirs, which have not yet been tested. A successful Yakamoz 1
side-track well would be tied 2km into the existing Poyraz Ridge
gas plant for processing and onward sales.
The Company produces natural gas and associated
condensate in Turkey. The Company produced 19,267 boe in Turkey or
an average of 213 boepd and received an operating
netback1 of $28.32 per boe for the three months
ended September 30, 2019 (three months ended September 30, 2018:
produced 59,960 boe or an average of 652 boepd and an operating
netback1 of $25.22 per boe). A stimulation
workover program is being developed that is intended to realize
commercial gas flow rates for the lower permeability
reservoirs.
Cash used in continuing operations decreased to
$0.8 million for the three months ended September 30, 2019 versus
cash from continuing operations of $0.7 million for the same period
in 2018.
|
Selected Financial Results of Continuing
Operations For the three months ended September
30 ($000’s except per share amounts) |
2019 |
|
2018 |
|
| Natural gas and condensate
sales |
1,097 |
|
2,166 |
|
| Cash from (used in) continuing
operations |
(805 |
) |
748 |
|
| Net loss from continuing
operations |
(2,933 |
) |
(4,654 |
) |
| Net loss from continuing
operations per share (basic and diluted) |
(0.07 |
) |
(0.11 |
) |
| Capital
expenditures |
108 |
|
344 |
|
|
For the nine months ended September 30
($000’s except per share amounts) |
|
|
| Natural gas and condensate
sales |
4,274 |
|
8,981 |
|
| Cash from (used in) continuing
operations |
(1,526 |
) |
2,497 |
|
| Net loss from continuing
operations |
(7,127 |
) |
(7,484 |
) |
| Net loss from continuing
operations per share (basic and diluted) |
(0.16 |
) |
(0.17 |
) |
| Capital
expenditures |
218 |
|
2,071 |
|
Sales and operating netback1 for
continuing operations for the three months ended September
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($000’s) |
Gas |
|
2019Condensate |
Total |
|
Gas |
|
2018Condensate |
Total |
|
| Sales |
1,033 |
|
64 |
|
1,097 |
|
2,166 |
|
- |
|
2,166 |
|
| Royalties |
(131 |
) |
(9 |
) |
(140 |
) |
(262 |
) |
- |
|
(262 |
) |
| Production costs |
(312 |
) |
(14 |
) |
(326 |
) |
(368 |
) |
- |
|
(368 |
) |
|
Transportation and selling |
(81 |
) |
(15 |
) |
(96 |
) |
(102 |
) |
- |
|
(102 |
) |
|
Operating netback1 |
509 |
|
26 |
|
535 |
|
1,434 |
|
- |
|
1,434 |
|
| |
|
|
|
|
|
|
|
| ($/boe)
|
|
|
|
|
|
|
|
| Sales |
56.92 |
|
86.14 |
|
58.07 |
|
38.09 |
|
- |
|
38.09 |
|
| Royalties |
(7.22 |
) |
(12.11 |
) |
(7.41 |
) |
(4.61 |
) |
- |
|
(4.61 |
) |
| Production costs |
(17.19 |
) |
(18.84 |
) |
(17.26 |
) |
(6.48 |
) |
- |
|
(6.48 |
) |
|
Transportation and selling |
(4.46 |
) |
(20.19 |
) |
(5.08 |
) |
(1.78 |
) |
- |
|
(1.78 |
) |
|
Operating netback1 |
28.05 |
|
35.00 |
|
28.32 |
|
25.22 |
|
- |
|
25.22 |
|
| |
|
|
|
|
|
|
|
|
| Sales
volume (boe) |
18,149 |
|
743 |
|
18,892 |
|
56,860 |
|
- |
|
56,860 |
|
Sales and operating netback1 for
continuing operations for the nine months ended September
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($000’s) |
|
|
|
|
|
|
|
| Sales |
|
4,111 |
|
163 |
|
4,274 |
|
8,716 |
|
265 |
|
8,981 |
|
| Royalties |
|
(509 |
) |
(22 |
) |
(531 |
) |
(1,049 |
) |
(32 |
) |
(1,081 |
) |
| Production costs |
|
(849 |
) |
(21 |
) |
(870 |
) |
(1,183 |
) |
(12 |
) |
(1,195 |
) |
|
Transportation and selling |
|
(333 |
) |
(35 |
) |
(368 |
) |
(351 |
) |
(62 |
) |
(413 |
) |
|
Operating netback1 |
|
2,420 |
|
85 |
|
2,505 |
|
6,133 |
|
159 |
|
6,292 |
|
| |
|
|
|
|
|
|
|
|
| ($/boe)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
54.91 |
|
93.46 |
|
55.79 |
|
41.90 |
|
102.61 |
|
42.64 |
|
| Royalties |
|
(6.80 |
) |
(12.61 |
) |
(6.93 |
) |
(5.05 |
) |
(12.31 |
) |
(5.13 |
) |
| Production costs |
|
(11.34 |
) |
(12.04 |
) |
(11.36 |
) |
(5.69 |
) |
(4.80 |
) |
(5.67 |
) |
|
Transportation and selling |
|
(4.45 |
) |
(20.07 |
) |
(4.80 |
) |
(1.68 |
) |
(24.10 |
) |
(1.96 |
) |
|
Operating netback1 |
|
32.32 |
|
48.74 |
|
32.70 |
|
29.48 |
|
61.40 |
|
29.88 |
|
| |
|
|
|
|
|
|
|
|
| Sales
volume (boe) |
|
74,868 |
|
1,744 |
|
76,612 |
|
208,022 |
|
2,581 |
|
210,603 |
|
- 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.
Crude oil production in Kazakhstan increased 76%
to 55,547 barrels or an average of 604 bopd for the third quarter
of 2019 as compared to the third quarter of 2018 in which the
Company produced 31,600 barrels or an average of 343
bopd.
During the third quarter, the Shoba 14
development well was drilled and began producing and the five well
workover program at Shoba and Taskuduk was completed. Subsequent
production averaged over 800 bopd for a fifteen day period but then
decreased due to a well failure. Future workovers have been
deferred due to the pending Shoba and Taskuduk Sale
Transaction.
Crude oil sales increased to $2.1 million on
57,062 bbl or $36.33 per bbl for the three months ended September
30, 2019 (2018: $1.3 million on 32,174 bbl or $39.87 per bbl) and
to $6.0 million on 160,878 bbl or $37.05 per bbl for the nine
months ended September 30, 2019 (2018: $4.2 million on 105,747 bbl
or $39.94 per bbl) due mainly to the higher production and sales
volumes.
Overall production costs decreased to $10.12 per
bbl for the three months and to $8.98 per bbl for the nine months
ended September 30, 2019 from $12.37 per bbl for the three months
and $10.99 per bbl for the nine months ended September 30, 2018
mainly due to the increase in oil production volumes.
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.
FORWARD-LOOKING STATEMENTS
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: foreign currency exchange rates, including the Canadian
dollar equivalent of the deposit and the expected total proceeds of
the Sale Transaction; the timing and ability to obtain the required
consents and satisfy the various governmental and commercial
conditions of the Sale Transaction, if at all; the timing and
ability to receive the Completion Payment; the timing of the
Closing of the Sale Transaction; the use of proceeds from the Sale
Transaction, including the repayment of amounts owing under the
Facility; 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 PSA
with the Uzbekistan Ministry under favorable terms, or at all; the
fields and exploration area to be included in the PSA; the terms
and conditions of the PSA including but not limited to royalty
rates, cost recovery, profit splits, gas marketing and pricing,
governance and acquisition payments; 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
and natural gas production; expected markets, prices and operating
netbacks for future oil and gas sales; the timing and ability to
increase production and cash flow by executing the planned drilling
and workover programs; 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 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, if
at all; 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; 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 Yakamoz; and the
timing and ability to tie the Yakamoz field into the Company’s
exiting gas plant.
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.
ABBREVIATIONS
The following is a summary of abbreviations used in this news
release:
|
bbl bopdboe
boepdMscf |
Barrels of oilBarrels of oil per dayBarrels of oil equivalent
*Barrels of oil equivalent per dayThousand 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.
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