Condor Announces 2021 Second Quarter Results
- Aug 13, 2021
- Condor Petroleum
CALGARY, August 12, 2021 – 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, 2021 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.
Condor continues to actively pursue an agreement to operate producing gas fields in Uzbekistan and is awaiting feedback from the Government of Uzbekistan on its operating proposal.
The Yakamoz 1 sidetrack well (“Yak 1-ST”) was drilled to a total depth of 2430 meters and encountered numerous strong gas shows in three of the four expected gas target intervals. Log data collected while drilling indicates reservoir-quality formations in the intervals where the strong gas shows were observed.
The Company has contracted a drilling rig for the Akshoky North (“Aks-1”) exploration prospect in Kazakhstan and plans to commence drilling in late Q3 2021.
A number of measures have been taken by the Company 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, with a cash position of $9.6 million as of June 30, 2021 and no debt.
Production decreased to an average of 79 boepd for the three months ended June 30, 2021 from 107 boepd in 2020, sales decreased to $0.2 million for the three months ended June 30, 2021 from $0.5 million in 2020 and the net loss increased to $3.7 million for the three months ended June 30, 2021 from $2.7 million in 2020.
Uzbekistan Production Contract
As previously disclosed, the Company presented and submitted a detailed feasibility study and economic analysis to the Government of Uzbekistan outlining the expected fiscal, social, and environmental benefits for Uzbekistan if the Company were to operate several existing gas fields. Condor also outlined the various technologies that would be implemented to enhance gas production rates and recoveries. The Company is awaiting feedback and endorsement of its proposal. Notwithstanding meeting and travel constraints imposed by COVID-19 related restrictions, the Company continues to actively pursue this initiative.
If executed, the production contract is expected to include multiple producing gas fields, associated gathering pipelines, and gas treatment infrastructure. The fiscal and operating terms expected to be defined in the production contract include royalty rates, cost deductibility, gas marketing and pricing, government participation, governance and steering committee structures, baseline production levels and reimbursement methodology.
The Yak 1-ST well was drilled to a total depth of 2430 meters and encountered numerous strong gas shows in three of the four expected gas target intervals. Log data collected during drilling operations indicates reservoir-quality formations in the intervals where the strong gas shows were observed. A combination of drilling rig mechanical issues and wellbore instability prevented production casing from being set across the target intervals. Casing was cemented to 1380 meters which is 750 meters above the highest target interval and the well has been suspended temporarily until the required equipment can be procured. At that time, Yak 1-ST will be re-entered, cased and fully evaluated. If commercial gas flowrates are confirmed, Yak 1-ST gas will be initially trucked to the Company’s neighbouring Poyraz Ridge Gas Facility while pipeline tie-in activities are completed.
The Company is encouraged by the initial Yak 1-ST results as it confirmed the presence of both clastic and carbonate reservoirs, an active hydrocarbon system, and gas shows in the deepest Eocene formation, which had not previously been discovered on the Company’s licenses. Based on the current data, Yak 1-ST appears to be analogous to the Poyraz West 1-ST well, which has been the most prolific producer in the Poyraz Ridge field. Plans to re-enter Yak 1-ST are targeted for Q4 2021.
The Yakamoz gas field is a parallel Miocene-Eocene trend/fairway lying 2 km north of the existing Poyraz Ridge gas field. Condor is currently integrating the Yak 1-ST data into its geological model to high grade prospective areas for future seismic and additional exploration drilling, as multiple thrust-fold and sub-thrust leads exist on the license.
Natural gas and associated condensate production in Turkey decreased to 79 boepd in the second quarter of 2021 from 107 boepd in the second quarter of 2020 mainly due to natural reservoir declines. The operating netback1 was ($0.1) million or ($13.39) per boe for the three months ended June 30, 2021 as compared to $(0.1) million or $(7.31) per boe in 2020. Cash used in operating activities before changes in non-cash working capital decreased to $1.2 million in the second quarter of 2021 versus $2.6 million for the same period in 2020. An increase in gas production would significantly enhance operating netbacks due to the strong reference gas price of CA$7.77 per mcf as of August 1, 2021 and the fact that production costs are primarily fixed. On July 25, 2021, the fields were shut-in to perform annual scheduled maintenance on the Poyraz Ridge Gas Facility and at the same time allow for a 30-day pressure build-up test on the wells. Production is scheduled to resume in August 2021.
Preparations are underway to drill the Akshoky North post-salt exploration prospect in late Q3 2021. The usual regulatory approvals to drill Aks-1 are being finalized and the contract with the drilling company has been executed.
Aks-1 has a three-way fault closure with an expected drill depth of 1100 meters and targets middle and lower Jurassic sandstones. The Company’s high-resolution 3-D seismic was used to identify this structure and the oil migration pathways necessary to charge the trap. Multiple commercial analogues to the Akshoky prospect have been discovered in the region and the Company’s internal estimate of Prospective Resources for the Akshoky structure is 20 million barrels (see Reserves Advisory).
Given the Company’s proven track record in oil and gas facility design and construction in the region, Condor has been evaluating the potential to implement proven North American modular liquified natural gas (“LNG”) midstream technologies and processes in Central Asia. Condor continues to advance commercial opportunities to displace diesel fuel in the industrial, transportation, and power generation sectors by utilizing the region’s abundant natural gas resources. Implementing LNG will materially reduce operating costs, dependence on diesel imports, and particulate and CO2 emissions. The Company’s strong regional working relationships have been important in progressing high level discussions with senior government officials and industry representatives. Thus far, the Company has received positive feedback and support from all levels of government.
Condor’s President and CEO, Don Streu, has been appointed as the “Honorary Consul of the Republic of Kazakhstan” for Alberta by Kazakhstan’s Ministry of Foreign Affairs. The honour represented by this appointment reflects the substantial investments that Condor has made in Kazakhstan and further highlights the personal contributions and long-time dedication and support that Mr. Streu has made to the country and the high level of mutual respect and cooperation between Condor and the government of Kazakhstan.
Selected Financial Information
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.
Total sales decreased to $0.2 million on 6,097 boe or $36.58 per boe for the three months ended June 30, 2021 (2020: $0.5 million on 9,175 boe or $52.53 per boe) and decreased to $0.6 million on 14,820 boe or $39.47 per boe for the six months ended June 30, 2021 (2020: $1.2 million on 21,686 boe or $56.07 per boe). Overall sales have decreased to date in 2021 versus the same periods in 2020 due mainly to decreased natural gas production and sales volumes and decreased natural gas sales prices.
Operating netbacks decreased to $(0.08) million or $(13.39) per boe for the three months ended June 30, 2021 from $(0.07) million or $(7.31) per boe for the same period in 2020 and decreased to $(0.1) million or $(6.28) per boe for the six months ended June 30, 2021 from $0.2 million or $7.42 per boe in 2020 due mainly to decreased gas production and sales volumes and decreased gas prices.
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, with a cash position of $9.6 million as of June 30, 2021 and no debt.
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 costs 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 “Results of Operations” 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 to provide an additional measure to analyze the Company’s sales on a per barrel of oil equivalent basis and its ability to generate funds.
This news release includes information pertaining to the internally generated estimates of Company resources effective March 1, 2021 which was prepared by a qualified reserves evaluator in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Additional reserve information as required under NI 51-101 is included in the Company’s Annual Information Form filed on SEDAR.
Statements relating to reserves and resources are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated. The reserve and resource estimates described herein are estimates only. The actual reserves and resources may be greater or less than those calculated. Estimates with respect to reserves and resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and analogy to similar types of reserves, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves.
References herein to 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.
“Proved” reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves.
“Probable” reserves are those additional reserves that are less certain to be recovered than Proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable reserves.
“Possible” reserves are those additional reserves that are less certain to be recovered than Probable reserves. There is a 10 percent probability that the quantities actually recovered will equal or exceed the sum of Proved plus Probable plus Possible reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated Proved plus Probable plus Possible reserves.
“Prospective Resources” disclosed herein are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery (geological chance of success) and a chance of development (economic, regulatory, market and facility, corporate commitment or political risks). The chance of commerciality is the product of these two risk components. There is no certainty that any portion of the Prospective Resources will be discovered and, if discovered, there is no certainty that it will be developed or, if it is developed, there is no certainty as to either the timing of such development or whether it will be commercially viable to produce any portion of the resources.
Unless otherwise stated herein, any reference to “Prospective Resources” refers to Condor Working Interest, Mean Recoverable, Prospective Resources, Unrisked.
The estimated total costs required to develop the Akshoky North prospect is USD 44 million per internal estimates. Commercial production is planned to commence in 2.5 to 3.5 years from initial prospect discovery using currently established and proven drilling, completion and facility technology. The project is based on conceptual studies.