Condor Announces 2018 Second Quarter Results

  • Aug 14, 2018
  • Condor Petroleum

CONDOR ANNOUNCES 2018 SECOND QUARTER RESULTS

CALGARY, August 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 and six months ended June 30, 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.

Q2 2018 Highlights

Achieved an average production of 1,173 boepd in the three months ended June 30, 2018 and 1,283 boepd in the six months ended June 30, 2018, representing 233% increases from the same respective periods in 2017.

Realized crude oil and natural gas sales of $4.8 million in the three months ended June 30, 2018 and $9.8 million in the six months ended June 30, 2018, representing a 242% and 315% increase from the same respective periods in 2017.

Realized an operating netback1 of $6.6 million or $28.95 per boe, representing a 408% increase from $1.3 million and a 64% increase from $17.63 per barrel respectively in the six months ended June 30, 2017.

Generated cash from operating activities of $3.8 million or $0.09 per basic share during the six months ended June 30, 2018 versus cash used in operating activities of $4.7 million or $0.11 per basic share during the same period in 2017.

Initiated drilling 2 new horizontal wells and 2 existing well workovers in Kazakhstan. This program is intended to more than double current oil production rates.

Drilled an infill gas well in Turkey. Multiple gas charged reservoirs were encountered with gas readings as high as 80%. Completion activities are underway.

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 has submitted a 630 day extension application to the Ministry of Energy of Kazakhstan, and it is currently under review. The Ministry of Energy has up to six months to appeal the case to the Supreme Court.

In 2018 the reference natural gas sales price in Turkey set by BOTA??, the state owned pipeline transportation company, was increased three times including 14% on January 1, 10% on April 1, and 14% on August 1. Using an exchange rate of 3.78 TL/CAD, the natural gas sales price as of August 1, 2018 is equivalent to $7.49 per Mscf.???????? ??

The Company recorded a net loss of $1.8 million before tax and $5.2 million after tax for the three months ended June 30, 2018 (2017: net loss before and after tax of $4.1 million) and a net loss of $2.6 million before tax and $6.0 million after tax for the six months ended June 30, 2018 (2017: net loss before and after tax of $64.0 million which includes $56.6 million of exploration and evaluation expense pertaining to the derecognition of the Zharkamys Contract assets).

Effective August 13, 2018, Stefan Kaltenbach resigned from the Board of Directors to pursue other business interest in Europe where Mr. Kaltenbach is resident. Effective August 14, 2018, Dr. Edward Bogle resigned from the Board of Directors to pursue other personal interests. The Company would like to thank Mr. Kaltenbach and Dr. Bogle for their significant contributions to the Company.

Operations

The Company produces crude oil in Kazakhstan and natural gas and associated condensate in Turkey. Overall production for the three months ended June 30, 2018 increased 233% to 106,758 barrels of oil equivalent or an average of 1,173 boepd from 32,099 barrels of oil or an average of 353 bopd for the same period in 2017 and also increased 233% for the six months ended June 30, 2018 to 232,325 barrels of oil equivalent or an average of 1,283 boepd from 69,747 barrels of oil or an average of 385 bopd for the same period in 2017. The production increases in 2018 are due mainly to the commencement of natural gas production in Turkey in December of 2017 and to the 5% year to date increase in crude oil production in Kazakhstan.

The Company produced 70,092 boe in Turkey or an average of 770 boepd and received an operating netback1 of $30.52 per boe for the three months ended June 30, 2018 (three months ended June 30, 2017: no gas production or sales) and 155,833 boe in Turkey or an average of 861 boepd and received an operating netback1 of $31.08 per boe for the six months ended June 30, 2018 (six months ended June 30, 2017: no gas production or sales). The Company also produced 1,398 barrels of condensate or 15 bopd for the three months ended June 30, 2018 and 3,314 barrels or 18 bopd for the six months ended June 30, 2018 (three and six months ended June 30, 2017: no condensate production).

The PW-6 infill well was drilled to a total depth of 1,896 meters and encountered multiple gas-charged reservoirs within three formations. Drill gas readings were observed to be as high as 80%. Completion activities are underway on the lowest two formations. Paraffin has not been observed on this well.

Production to date from Poyraz Ridge has been below the rates initially forecast due to greater variability in reservoir quality and continuity than originally modelled. The limited production history indicates reservoir compartmentalization, which is reducing each well???s effective gas drainage radius. The existing wells as currently completed appear unable to drain all of the gas sands. As per the original Poyraz Ridge development plan, additional infill wells will be required. A workover program for existing wells is also being developed and focusing on completing additional pay sections and stimulation options to realize commercial flow rates for the lower permeability reservoirs.

The Company produced 35,268 barrels of oil or an average of 388 bopd and realized an operating netback1 of $23.72 per barrel in Kazakhstan for the second quarter of 2018 (second quarter of 2017: 32,099 barrels or an average of 353 bopd and an operating netback1 of $19.68 per barrel). For the six months ended June 30, 2018 the Company produced 73,178 barrels or an average of 404 bopd ??with an operating netback1 of $23.41 per barrel in Kazakhstan (six months ended June 30, 2017: 69,747 barrels or an average of 385 bopd and an operating netback1 of $17.63 per barrel)

Drilling has commenced on a 2 well infill program in Kazakhstan. The first well is expected to be completed in August 2018 and begin producing in September 2018. The second well should begin producing in October 2018. Two well workovers are also planned to be completed in September 2018. This drilling and workover program is intended to increase oil production to over 800 bopd.

Cash from operating activities increased to $3.8 million for the six months ended June 30, 2018 versus cash used in operating activities of $4.7 million for the same period in 2017. Cash from operating activities before changes in non-cash working capital increased to $3.4 million for the six months ended June 30, 2018 versus cash used in operating activities before changes in non-cash working capital of $4.2 million for the same period in 2017.

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. 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 has submitted a 630 day extension application to the Ministry, and it is currently under review. 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.

Financial Results

For the three months ended June 30??????????????????????????????????????????????????????????????????????????????????

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For the six months ended June 30??????????????????????????????????????????????????????????????????????????????????????????????

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????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.

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The Company???s ability to realize assets and discharge liabilities in the normal course of business as they become due is dependent upon the ability to fund operations and the repayment of existing borrowings by generating positive cash flows from operations, renegotiating the terms of the current borrowings, securing funding from additional debt or equity financing, disposing of assets or making other arrangements. The Company is actively pursuing various strategies to enhance its liquidity position and those matters are discussed in greater detail in the Company???s financial statements and management???s discussion and analysis for the three and six months ended June 30, 2018.

During the past week the Turkish Lira (???TL???) has experienced significant volatility in the foreign currency exchange markets. The Company is exposed to foreign currency risk as a substantial portion of the Company???s foreign activities are transacted in or referenced to foreign currencies and the Company???s borrowings are denominated in USD.

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.??