- May 24, 2018
- Condor Petroleum
CALGARY, May 14, 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 unaudited interim condensed consolidated financial statements for the three months ended March 31, 2018, 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.
Q1 2018 Highlights
Completed Poyraz Ridge gas facilities commissioning and initiated commercial gas production, yielding positive cash flow.
Achieved an average production of 1,395 boepd, representing a 234% increase from the first quarter of 2017.
Realized crude oil and natural gas sales of $5.0 million, representing a 423% increase from the first quarter of 2017.
Realized an operating netback1 of $3.4 million or $29.07 per boe, representing a 500% increase from $0.6 million and a 63% increase from $17.89 per barrel respectfully in the first quarter of 2017.
Generated cash from operating activities of $2.1 million or $0.05 per basic share during the first quarter of 2018 versus cash used in operating activities of $2.2 million or $0.05 per basic share during the same period in 2017.
In March 2018, a Kazakhstan Civil Court ruling confirmed and in May 2018 a Kazakhstan Court of Appeal ruling upheld that the force majeure event had occurred related to the Zharkamys Contract extension. Since the Court of Appeal ruling is enforceable under law, the Company is submitting a 630 day extension application to the Ministry of Energy of Kazakhstan. The Ministry of Energy has up to six months to appeal the case to the Supreme Court.
On January 1, 2018 the reference natural gas sales price in Turkey set by BOTAŞ, the state owned pipeline transportation company, was increased by 14% to 800 TL per thousand cubic meter or $7.19 per Mscf at the exchange rate of 3.15 TL/CAD.
On April 1, 2018 the reference natural gas sales price in Turkey set by BOTAŞ was increased by a further 10% to 877.6 TL per thousand cubic meter or $7.89 per Mscf at the exchange rate of 3.15 TL/CAD.
The Company recorded a net loss of $0.8 million for the three months ended March 31, 2018 (2017: net loss of $59.9 million which includes $56.6 million of exploration and evaluation expense pertaining to the derecognition of the Zharkamys Contract assets).
Financial Results for the three months ended March 31
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. The calculation of operating netback is aligned with the definition found in the Canadian Oil and Gas Evaluation Handbook.
The Company produces natural gas and condensate in Turkey and crude oil in Kazakhstan and overall production increased 234% to 125,567 boe or an average of 1,395 boepd for the three months ended March 31, 2018 from 37,648 boe or an average of 418 boepd in the three months ended March 31, 2017. The production increase is due to initiating commercial gas production at Poyraz Ridge.
For the three months ended March 31, 2018 the Company produced 85,741 boe in Turkey or an average of 953 boepd and received an operating netback of $31.56 per boe (three months ended March 31, 2017: no gas production or sales). The Company also produced 1,916 barrels of condensate which was held in inventory as at March 31, 2018.
During the past 30 days, gas production has averaged 708 boepd and gas plant uptime was 75%. Production has been impacted by numerous gas plant shut-downs which have been necessary to modify processing equipment and increase gas plant uptime. The existing wells are also experiencing natural production declines although still producing between 900 to 1000 boepd when consistently flowing. As per the original Poyraz Ridge development plan, an infill well program is planned for 2018 and 2019 to offset production declines. Seismic inversion processing of the Poyraz Ridge 3D data has been completed and calibrated with the existing well’s initial production performance and reservoir parameters. This has identified a number of reservoir ‘sweet spots’ that contain multiple, stacked gas sands and higher fracture density and connectivity that will be targeted for the upcoming infill well drilling program.
Subsurface characterization continues on the Yakamoz sub-thrust fold prospect which is located 2 kilometers north of the Poyraz Ridge field and within the Company’s Poyraz Ridge Operating License. Recent reprocessing of the original 2D seismic data has significantly improved both data quality and imaging of the structure and stratigraphy, which has been integrated into a revised geological model. Two separate locations have been identified up-dip from the Yakamoz 1 well, where numerous gas shows were encountered while drilling in 2017. The new locations target both the proven Miocene and Upper Eocene reservoirs, in addition to the deeper Middle to lower Eocene reservoirs, which have not been tested. A side-track of the Yakamoz 1 well drilled in 2017 into one of these up-dip targets is planned for 2018, subject to available funding. A successful Yakamoz 1 well would be tied into the existing Poyraz Ridge gas plant for processing and onward sales.
For the three months ended March 31, 2018 the Company produced 37,910 barrels in Kazakhstan (three months ended March 31, 2017: 37,648 barrels of oil) or an average of 421 bopd (three months ended March 31, 2017: 418 bopd) with an operating netback of $23.05 per barrel (three months ended March 31, 2017: $17.89 per barrel). The existing wells are performing as forecast and two additional horizontal wells are planned for 2018 to grow Kazakhstan oil production and cash flows. No development wells have been drilled since the commercial production contracts were issued in 2016.
The Company recorded a net loss of $0.8 million for the three months ended March 31, 2018 (2017: net loss of $59.9 million which includes $56.6 million of exploration and evaluation expense related to the derecognition of the Zharkamys Contract assets). Cash from operating activities increased to $2.1 million for the three months ended March 31, 2018 versus cash used in operating activities of $2.2 million for the same period in 2017. Cash from operating activities before changes in non-cash working capital increased to $1.8 million for the three months ended March 31, 2018 versus cash used in operating activities of $1.7 million for the same period in 2017.
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, ruled 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 upheld the Civil Court ruling that the force majeure event had occurred. Since the Court of Appeal ruling is enforceable under law, the Company is submitting a 630 day extension application to the Ministry. The Ministry has up to six months to appeal the case to the Supreme Court. Should the case not be appealed by the Ministry to the Supreme Court or, in the case of an appeal and a positive ruling by the Supreme Court to uphold the force majeure, the Company expects the exploration period would be extended by 630 days. Conversely, if the case is appealed by the Ministry to the Supreme Court and the Supreme Court delivers a negative ruling, the Zharkamys Contract would likely revert 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.
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 and natural gas sales less royalties, production costs 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.