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Press release from Marketwire

Zargon Oil & Gas Ltd. Provides Operational Update and Releases 2011 Year End Reserves

Wednesday, February 15, 2012

Zargon Oil & Gas Ltd. Provides Operational Update and Releases 2011 Year End Reserves19:52 EST Wednesday, February 15, 2012CALGARY, ALBERTA--(Marketwire - Feb. 15, 2012) - Zargon Oil & Gas Ltd. (TSX:ZAR) ("Zargon") is pleased to provide fourth quarter production statistics, an operational update and report its 2011 year end reserves. Zargon intends to release its 2011 audited financial results on March 9, 2012, before market open.HIGHLIGHTS:Reflecting an active oil exploitation capital program, fourth quarter 2011 oil and liquids production averaged 5,619 barrels per day, a five percent gain over the preceding quarter's rate of 5,330 barrels per day. On a per million share basis, oil and liquids production averaged 192 barrels per day, a five percent improvement from the prior quarter's rate of 182 barrels per day. Fourth quarter 2011 natural gas production averaged 21.96 million cubic feet per day per day, a one percent decrease from the prior quarter's rate of 22.10 million cubic feet per day. Fourth quarter 2011 total production averaged 9,278 barrels of oil equivalent per day (on a 6:1 equivalency basis), a three percent increase from the prior quarter's rate of 9,014 barrels of oil equivalent per day. During the 2011 fourth quarter, Zargon completed an active oil exploitation drilling program by drilling 11.5 net wells that resulted in 9.0 net oil wells and 2.5 net abandonments. The field capital program was highlighted by Williston Basin horizontal Midale oil drainage wells plus Hamilton Lake and Bellshill Lake oil exploitation wells in the Alberta Plains North core area. Zargon's 2011 year end proved and probable total reserves increased six percent to 34.29 million barrels of oil equivalent. These reserves were appraised by Zargon's independent reserves evaluator McDaniel & Associates Consultants Ltd. ("McDaniel") and are effective as of December 31, 2011. On a 6:1 equivalency basis, oil and liquids comprised 70 percent of Zargon's total proved and probable reserves at year end 2011 up from a 66 percent weighting at the end of 2010. Zargon's 2011 year end proved and probable oil and liquids reserves increased 13 percent to total 24.05 million barrels. The proved and probable oil and liquids reserve estimate includes 3.75 million barrels of probable undeveloped oil and liquids reserves assigned to the Alkaline Surfactant Polymer ("ASP") tertiary oil recovery project at Little Bow, Alberta as this project has progressed from engineering studies to a project implementation phase. On a per share basis, Zargon's 2011 year end proved and probable oil and liquids reserves were 0.82 barrels, a four percent increase over the prior year. Zargon's year end 2011 "produce-out" net asset value is calculated to be $16.50 per diluted share. This estimate reflects McDaniel's estimate of the Zargon properties' future cash flow using a before tax 10 percent discount rate and forecast prices and costs plus the appraisal of Zargon's undeveloped land less an allowance for the year end bank debt and working capital deficiencies. Over 88 percent of the discounted cash flow values are attributable to oil and liquids production. On a proved and probable developed producing reserve assignment basis, Zargon's "produce-out" net asset value is calculated to be $14.05 per diluted share. Production Zargon's production averaged 9,278 barrels of oil equivalent per day in the fourth quarter and was three percent higher than the preceding quarter and was essentially unchanged from the corresponding 2010 quarter. Oil and liquids production averaged 5,619 barrels per day in the 2011 fourth quarter, a five percent increase from the prior quarter and a three percent increase from the corresponding 2010 quarter. Natural gas production averaged 21.96 million cubic feet per day, a one percent decrease from the previous quarter and a six percent decrease from the corresponding 2010 quarter. Fourth quarter 2011 oil and liquids production represented 61 percent of total production based on a 6:1 equivalent basis. For calendar 2011, Zargon's production averaged 9,131 barrels of oil equivalent per day, comprised of 5,469 barrels of oil per day and 21.97 million cubic feet of natural gas per day. Field Activities Zargon's fourth quarter field capital program totalled $23.7 million (unaudited) and included the drilling of 9.0 net oil wells and 2.5 net dry holes. The fourth quarter Alberta Plains North drilling program was highlighted by three vertical infills at Bellshill Lake and one horizontal multi-frac well at Hamilton Lake. Operated wells in the Williston Basin core area included three Midale horizontal drainage wells at the Weyburn and Elswick, Saskatchewan properties. In 2011, three multi-frac horizontal locations were drilled at the 47 section wholly-owned Hamilton Lake property. After an average of five months of production, January 2012 production for the three wells averaged 48 barrels of oil per day per well with a 73 percent water cut. Unlocking the potential of Hamilton Lake's large oil-in-place resource with stimulated horizontal wells and a reactivated waterflood will be a high priority in 2012. In the first quarter of 2012, two wells have been drilled and completed and will be production tested shortly. Two additional wells are scheduled for this summer and additional locations are expected to be drilled this fall and winter. Success at Hamilton Lake could lead to more than 30 additional horizontal oil locations. The McDaniel 2011 year end report has not booked any of these undeveloped Hamilton Lake Viking multi-frac horizontal locations. In addition to Hamilton Lake, 2012 capital will be directed to the Killam property, where a three well horizontal development drilling program will be completed in the first quarter. This program will be followed by the implementation of a pilot waterflood and further delineation drilling. With further de-risking, the Killam property is expected to be a significant oil exploitation project that could require as many as 20 horizontal drainage wells to optimally exploit under a waterflood scheme. The McDaniel 2011 year end report has booked only three of these undeveloped Killam Glauconite horizontal locations. Additional 2012 Alberta expenditures will be directed to oil exploitation projects at Bellshill Lake and Taber. At Bellshill Lake, further infill drilling plus oil treating and water disposal upgrades are expected to deliver increased oil production and reserves. Similarly at Taber, capital will be allocated to drill infill horizontal producers and to expand and enhance waterflood recoveries through additional injection well conversions. In the Williston Basin, we are working three types of oil exploitation projects. In 2011, the majority of our Williston Basin drilling were Midale drainage locations, which are characterized by low permeability reservoirs that are generally partially pressure supported by either weak aquifers or, in some cases, by non-operated offsetting mature waterfloods. Production from Midale type wells are characterized by relatively low rates, moderately high water cuts, but shallow production declines. Ultimately, as many as 30 of these drainage locations are expected to be drilled over the next three years at the Weyburn, Elswick, Midale, Ralph and Steelman properties. The McDaniel 2011 year end report has booked only two of these undeveloped Williston Basin Midale horizontal drainage locations. Exploiting un-drained Frobisher seismically defined targets is the second type of Williston Basin oil exploitation project that is being pursued. These Frobisher targets are characterized by higher permeability rock with full aquifer pressure support. Successful wells have high initial oil production rates, but high initial declines as the flank water encroaches on the wells. The economics of these Frobisher programs can be very robust, as demonstrated by our 17 well 2009-2010 Steelman Frobisher program where McDaniel assigned average proved and probable reserves in excess of 75 thousand barrels of oil per well. Over the next three years, we expect to drill a minimum of 15 Frobisher locations on already identified structures at the Weyburn, Steelman and Mackobee Coulee properties. The McDaniel 2011 year end report has not booked any of these undeveloped Williston Basin Frobisher horizontal locations. Our final Williston Basin exploitation project entails the unlocking of thick Mississippian low permeability carbonate targets through horizontal multi-frac wells in conjunction with the implementation of full-field waterfloods. In particular, Zargon has significant "tight oil waterflood potential" with considerable oil-in-place resources in the low permeability Daly, Virden, Workman and Truro properties. In 2012, we will advance the de-risking program for these long term opportunities with a second Truro multi-frac location and a two well multi-frac horizontal injector-producer pilot waterflood at Daly, Manitoba. The McDaniel 2011 year end report has booked only one of these undeveloped Williston Basin "tight oil" multi-frac horizontal locations. Throughout 2012, we will systematically drill oil locations high-graded from our large inventory of oil exploitation projects. The 2012 first quarter drilling program will include two Hamilton Lake Viking stimulated horizontal locations, three Killam Glauconite horizontal locations, three Frobisher type locations at Weyburn and Steelman, Saskatchewan and one stimulated horizontal location at Truro, North Dakota. Finally, in recent years our business has been challenged by rapidly increasing operating costs as we integrated the properties from five corporate and one large property oil acquisition. Now, with a refocused business plan with eight clearly defined oil exploitation initiatives (Hamilton Lake, Killam, Bellshill Lake, Taber, Williston Basin Midale, Williston Basin Frobisher, Williston Basin tight oil waterflood, and Little Bow ASP), we have an opportunity to high grade our property footprint and concentrate on cost containment initiatives. To this end, we will continue to sell non-strategic oil properties if attractive valuations can be realized. Also, during this period of low natural gas prices, we will complete a comprehensive review of our natural gas properties to identify well shut-in, facility consolidation and other fixed cost saving opportunities that will permit improved returns when natural gas prices improve. Little Bow Alkaline Surfactant Polymer ("ASP") Project Earlier this year, Zargon announced that it would proceed with detailed engineering, regulatory applications and the procurement of long-lead time equipment for the Little Bow Upper Mannville I pool ASP project. This tertiary oil recovery project entails the injection of chemicals in a water solution into a partially depleted reservoir to recover incremental oil reserves. The project schedule anticipates first chemical injections in July 2013, with a significant oil production response forecast to occur by January 2014. In their year end review, McDaniel assigned 4.15 million barrels of oil equivalent of probable undeveloped reserves to Zargon's working interest in Phases 1 and 2 of the project. Future costs to develop the first two phases of the project are estimated at $103.5 million and are comprised of $47.8 million for the field and related capital (2012-2015) and $55.7 million for the cost of the chemical injections (2013-2019). Incorporating all future capital (including chemical costs), the Little Bow ASP Phase 1 and 2 finding and development cost is estimated to be $24.98 per barrel of oil equivalent. Targeted field netbacks for the Little Bow ASP Phase 1 and 2 project are in the $50 to $60 per barrel of oil range.In 2012, Zargon is projecting to spend $21 million of Phase 1 Little Bow ASP capital with 75 percent of the expenditures occurring in the second half of the year. An additional $11 million of capital expenditures is forecast to be spent in 2013, with the remainder of the capital costs relating to the project's Phase 2 implementation scheduled for 2014 and 2015. 2011 Capital Expenditures and 2012 Capital Budgets Reflecting a very active fall and early winter oil exploitation drilling program, Zargon spent $71.7 million (unaudited) on field activities in 2011. These expenditures were offset by a net $23.4 million (unaudited) of property dispositions and resulted in net 2011 field capital expenditures of $48.3 million (unaudited). Excluding the Little Bow ASP project, Zargon's 2012 field capital budget has been reduced by $10 million from previous guidance of $65 million to $55 million as we redirect a portion of our capital spending to long term ASP tertiary oil opportunities that will provide stable mid-decade production volumes. Similar to 2011, this field capital program will be partially funded by non-strategic property dispositions, as we improve our property focus and footprint. Our current budget calls for $10 million of net property dispositions and results in a net $45 million of non-ASP capital expenditures. Consistent with our 2010-2011 strategy, the 2012 field programs are directed entirely to oil exploitation activities. In Alberta, the 2012 field capital program will focus on Hamilton Lake Viking oil exploitation, Bellshill Lake increased fluid withdrawals, Killam Glauconite oil pool development, Taber South waterflood expansion and the Little Bow ASP project development. In the Williston Basin, the capital program will focus on Midale horizontal drainage locations, Frobisher undrained targets and early de-risking expenditures for waterflooding tight oil carbonates with multi-frac horizontal wells. Including the Little Bow ASP project, Zargon's 2012 capital budget has been reset at $66 million and is comprised of $21 million of ASP related expenditures and the net $45 million of field capital expenditures. As at the end of the 2011 fourth quarter, Zargon's debt net of working capital is $109.5 million (unaudited), a level that represents 61 percent of Zargon's $180 million syndicated loan facility.Production Guidance On July 19, 2011, Zargon provided 2011 fourth quarter production guidance at 5,400 barrels of oil and liquids per day. Fourth quarter actual volumes were 5,619 barrels of oil and liquids per day and exceeded guidance levels. On September 12, 2011, Zargon updated fourth quarter 2011 natural gas production guidance at 21.60 million cubic feet per day. Fourth quarter actual volumes were 21.96 million cubic feet per day and exceeded guidance levels. Incorporating the $45 million of net field (non-ASP) 2012 capital expenditures, Zargon's 2012 oil and liquids production guidance is now reduced from 5,650 barrels per day to 5,400 barrels per day, a production level that is expected to remain relatively consistent throughout the year. Reflecting essentially no natural gas related capital expenditures in 2012, corporate natural gas production declines of 15 percent per year and approximately one million cubic feet per day of economic related shut-ins, the 2012 natural gas production guidance level remains set at 18.60 million cubic feet per day.2011 Year End Reserves:Reserves included herein are stated on a gross company working interest basis unless otherwise noted. All reserves information has been prepared in accordance with National Instrument 51-101 Standards of Disclosure ("NI 51-101"). In addition to the detailed information disclosed in this press release, more detailed information will be included in Zargon's 2011 Annual Information Form to be filed on SEDAR (www.sedar.com) in March 2012. Based on an independent reserves evaluation conducted by McDaniel effective December 31, 2011, and prepared in accordance with NI 51-101, Zargon had proved and probable reserves of 34.29 million barrels of oil equivalent. Reserve additions from exploration and development activities (including revisions) and corporate and net property acquisitions were 5.24 million barrels of oil equivalent. Company Reserves(1)At December 31, 2011Oil and Liquids (mmbbl)Natural Gas (bcf)Equivalents (2) (mmboe)Proved producing13.6933.7119.31Proved non-producing0.425.291.31Proved undeveloped0.490.370.54Total proved14.6039.3721.16Probable additional producing4.7111.536.63Probable non-producing and undeveloped4.7410.536.50Total probable additional9.4522.0613.13Total proved and probable producing18.4045.2425.94Total proved and probable24.0561.4334.29Proved producing reserve life index, years (3)6.74.25.7Proved reserve life index, years (3)7.14.96.2Proved and probable producing reserve life index, years (3)9.05.67.7Proved and probable reserve life index, years (3)11.77.710.1Company working interest reserves are gross reserves before deduction of royalties, boe (6:1).Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.Reserve life is calculated using annualized fourth quarter 2011 production.A summary reconciliation of the 2011 year end reserve assignments with the reserves reported in the 2010 year end report based on McDaniel's forecast prices and costs is presented below: Reserve Reconciliation (All Categories)Oil and Liquids (mmbbl)Natural Gas (bcf)Equivalents (mmboe) Proved ProbableProved & Prob. Proved ProbableProved & Prob. Proved ProbableProved & Prob.December 31, 201015.156.1521.3044.2622.2766.5322.539.8632.39Discoveries and extensions0.944.265.200.662.743.401.054.725.77Revisions0.84(0.81)0.030.29(4.04)(3.75)0.89(1.48)(0.59)Acquisitions and dispositions(0.33)(0.15)(0.48)2.181.093.270.030.030.06Production(2.00)-(2.00)(8.02)-(8.02)(3.34)-(3.34)December 31, 201114.609.4524.0539.3722.0661.4321.1613.1334.29On a proved and probable basis, Zargon's reserves have increased by six percent in 2011. Including revisions, Zargon replaced 157 percent of 2011 production through the addition of 5.24 million barrels of oil equivalent. Before revisions, 5.83 million barrels of oil equivalent were added, representing 175 percent of production. Oil reserves accounted for 91 percent (after revisions) of the proved and probable reserve additions. Field capital exploration and development programs provided 5.77 million barrels of oil equivalent of new additions. Net property acquisitions/dispositions for 2011 added 0.06 million barrels of oil equivalent, despite the fact that the 2011 net acquisition/disposition program provided $23.4 million of net proceeds to Zargon. Overall, technical reserve revisions were a negative 0.59 million barrels of oil equivalent. During the year, positive technical revisions pertaining to Alberta Plains Taber and Bellshill Lake oil exploitation properties were offset by negative reserve adjustments at the Williston Basin Haas and Weyburn properties. With the sharply lower natural gas prices, negative proved and probable natural gas revisions totalling 3.75 billion cubic feet due to economic factors were booked at Jarrow and selected Alberta Plains South properties. Reserve Reconciliation (Developed Producing)Oil and Liquids (mmbbl)Natural Gas (bcf)Equivalents (mmboe) Proved ProbableProved & Prob. Proved ProbableProved & Prob. Proved ProbableProved & Prob.December 31, 201014.044.7818.8237.3512.7850.1320.276.9127.18Discoveries and extensions0.930.161.090.480.170.651.010.191.20Revisions0.96(0.13)0.832.02(2.14)(0.12)1.30(0.49)0.81Acquisitions and dispositions(0.24)(0.10)(0.34)1.880.722.600.070.020.09Production(2.00)-(2.00)(8.02)-(8.02)(3.34)-(3.34)December 31, 201113.694.7118.4033.7111.5345.2419.316.6325.94Zargon's reserves are characterized by a high developed producing component. Proved developed producing reserves represent 91 percent of total proved reserves while proved and probable proved developed reserves account for 76 percent of total proved and probable reserves. Reflecting long life production characteristics, Zargon's proved and probable developed producing oil liquids reserve life index is 9.0 years. FINDING, DEVELOPMENT AND ACQUISITION COSTS:We have presented finding and development costs below both including and excluding acquisitions and dispositions. While NI 51-101 requires that the effects of acquisitions and dispositions be excluded, we have included these items because we believe that acquisitions and dispositions can have a significant impact on our ongoing reserve replacement costs and that excluding these amounts could result in an inaccurate portrayal of our cost structure. For 2011, Zargon's proved and probable finding, development and acquisition (FD&A) costs, taking into account reserve revisions and changes in estimated future development capital during the period, were $27.58 per barrel of oil equivalent. In excess of 90 percent of the total proved and probable reserve additions were oil and liquids related. These oil exploitation capital expenditures were generally allocated to projects with targeted first year field netbacks ranging from $40 to $60 per barrel of oil equivalent. For the purposes of this calculation, the $48.3 million of 2011 net capital additions was combined with an increase in estimated future development capital for proved and probable reserves of $96.2 million ($128.8 million at December 31, 2011 compared to $32.6 million at December 31, 2010; future capital for the Little Bow ASP projects represents more than 80 percent of the 2011 year end future capital costs). Excluding acquisitions (and dispositions), Zargon's 2011 proved and probable finding and development (F&D) costs were $32.41 per barrel of oil equivalent. If the change in future development costs are excluded, the 2011 proved and probable FD&A costs, taking into account reserve revisions, were $9.22 per barrel of oil equivalent ($13.83 per barrel of oil equivalent on a F&D basis).Proved and Probable Finding, Development and Acquisition Costs (1)2011 2010 2009Total net capital expenditures ($ millions) - unaudited (2)48.2971.38103.83Total net capital expenditures plus change in forecast future development costs ($ millions) (2)144.5279.62100.65Proved and probable reserves (mmboe)Open32.3932.2429.72Discoveries and extensions5.773.071.78Acquisitions and dispositions0.061.534.22Revisions(0.59)(0.84)0.12Production(3.34)(3.61)(3.60)Close34.2932.3932.24Proved and probable FD&A costs ($/boe) (3)27.5821.1816.45Proved and probable three-year FD&A costs ($/boe) (3)21.4818.8319.57Proved and probable F&D costs ($/boe) (3)32.4130.7922.77Proved and probable three-year F&D costs ($/boe) (3)30.0624.8023.291.The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.2.Amounts exclude additions for administrative assets.3.Amounts are calculated including the change in future development costs.Note:2010 and 2009 numbers do not reflect any changes to accounting rules which may have occurred.Capital Program Performance (All categories)2011 2010 2009Three-Year Average (2009 - 2011)Total Capital Program (including future development costs)Proved FD&A costs ($/boe) (1)21.1124.6019.2421.30Proved and probable FD&A costs ($/boe) (1)27.5821.1816.4521.481.FD&A costs taking into account reserve revisions during the year on a barrel of oil equivalent basis (6:1).Note:2010 and 2009 numbers do not reflect any changes to accounting rules which may have occurred.Capital Program Performance (Developed Producing Reserves Only)2011 2010 2009Three-Year Average (2009 - 2011)Total Capital Program (including future development costs)Proved Producing FD&A costs ($/boe) (1)20.3728.9020.1122.34Proved and Probable Producing FD&A costs ($/boe) (1)23.1127.5218.1921.531.FD&A costs taking into account reserve revisions during the year on a barrel of oil equivalent basis (6:1).Note:2010 and 2009 numbers do not reflect any changes to accounting rules which may have occurred.NET ASSET VALUE:Zargon's oil, liquids and natural gas reserves were evaluated using McDaniel's price forecasts effective January 1, 2012, prior to provisions for income taxes, interest, debt service charges, transaction costs and general and administrative expenses. The estimated values of future net revenue disclosed do not represent the fair market value of the reserves.Before Tax Present Value of Future Net Revenue(Forecast Prices and Costs)Discount Factor($ millions)0%5%10%15%Proved producing603.0469.2386.7332.0Proved non-producing23.117.914.311.8Proved undeveloped18.313.910.88.5Total proved644.4501.0411.8352.3Probable additional producing266.8147.897.771.5Probable additional non-producing and undeveloped 154.7 87.6 49.5 26.4Total probable additional421.5235.4147.297.9Total proved and probable producing869.8617.0484.4403.5Total proved and probable1,065.9736.4559.0450.2The following net asset value table shows what is customarily referred to as a "produce-out" net asset value calculation under which the current value of Zargon's reserves would be produced at McDaniel's forecast future prices and costs. The value is a snapshot in time as at December 31, 2011, and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. In this analysis, the present value of the proved and probable reserves is calculated at a before tax 10 percent discount rate. In the net asset value calculation, Zargon's 422 thousand net acres of land is valued at $32.7 million based on the independent firm of Seaton-Jordan & Associates Ltd. valuation as at December 31, 2011.Net Asset ValueAs at December 31 ($ millions)201120102009Proved and probable reserves (PVBT 10%) (1) (2)559.0 570.7 592.4Undeveloped land32.744.558.8Working capital (excluding unrealized risk management assets/ liabilities and future income taxes) - unaudited(15.9) (9.1) (11.4)Bank debt - unaudited(92.7)(115.3)(76.6)Proceeds from the exercise of all common share rights19.631.741.0Net asset value (including common share rights dilution)502.7522.5604.2Net asset value per shareTotal ($/share)16.4518.1521.65With full dilution ($/share) (3)16.5018.3421.771.McDaniel's estimate of future before tax cash flow discounted at PV 10 percent.2.PVBT 10 percent represents present value before taxes discounted at 10 percent.3.Full dilution of shares represents the year end common shares outstanding plus the presumed exercise of all common share rights. At December 31, 2011, Zargon had 29.36 million common shares outstanding and 1.10 million common share incentive rights issued and outstanding. Assuming the exercise of all common share incentive rights, there would be 30.46 million common shares outstanding at this date.Note:2010 and 2009 numbers do not reflect any changes to accounting rules which may have occurred.Forward-Looking Statements - This press release contains forward-looking statements relating to our plans and operations as at February 15, 2012. Forward-looking statements typically use words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "should", "plan", "intend", "believe" and similar expressions (including the negatives thereof). In particular, this press release contains forward-looking statements relating, but not limited to: our business strategy, plans and management focus; the timing of release of our 2011 financial results, our 2012 capital expenditure program, anticipated 2012 production guidance and product mix, drilling, completion, development and exploitation plans and the results therefrom, future drilling locations, plans to sell non-strategic assets and to review and implement cost saving opportunities, plans with respect to our Little Bow ASP project, anticipated netbacks, capital expenditures and other costs associated with the ASP project and the anticipated results from this project, and sources of funding for our capital expenditure program. In addition, all statements relating to reserves in this press release are deemed to be forward-looking as they involve an implied assessment, based on certain assumptions and estimates, that the reserves described can be properly produced in the future. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, such as those relating to results of operations and financial condition, general economic conditions, industry conditions, changes in regulatory and taxation regimes, volatility of commodity prices, escalation of operating and capital costs, currency fluctuations, the availability of services, imprecision of reserve estimates, geological, technical, drilling and processing problems, environmental risks, weather, the lack of availability of qualified personnel or management, stock market volatility, the ability to access sufficient capital from internal and external sources and competition from other industry participants for, among other things, capital, services, acquisitions of reserves, undeveloped lands and skilled personnel. Risks are described in more detail in our Annual Information Form, which will be available on our website. Forward-looking statements are provided to allow investors to have a greater understanding of our business. You are cautioned that the assumptions, including, among other things, future oil and natural gas prices; future capital expenditure levels; future production levels; future exchange rates; the cost of developing and expanding our assets; our ability to obtain equipment in a timely manner to carry out development activities; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur or, if any of them do, what benefits we will derive from them. The forward-looking information contained in this document is expressly qualified by this cautionary statement. Our policy for updating forward-looking statements is that Zargon disclaims, except as required by law, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.Other Advisories - Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Zargon Oil & Gas Ltd. is a Calgary based oil and natural gas company working in the Western Canadian and Williston sedimentary basins that has delivered a long history of returns, dividends (distributions) and value creation. Zargon's business is focused on oil exploitation projects where we employ a careful reservoir engineering inspired technical approach to profitably increase oil recovery factors from existing oil reservoirs. In order to learn more about Zargon, we encourage you to visit Zargon's website at www.zargon.ca where you will find a current shareholder presentation, financial reports and historical news releases.FOR FURTHER INFORMATION PLEASE CONTACT: C.H. HansenZargon Oil & Gas Ltd.President and Chief Executive Officer403-264-9992zargon@zargon.caORVice President, Finance and Chief Financial OfficerJ.B. Dranchuk403-264-9992zargon@zargon.cawww.zargon.ca