Corporate Presentation

Transcription

1 Corporate Presentation May 10, 2017 zargon.ca

2 Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at May 5, 2017, and contains forward-looking statements. Such statements are generally identified by the use of 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 presentation contains forward-looking information as to Zargon s corporate strategy and business plans, Zargon s oil exploration project inventory and development plans, Zargon s dividend policy and the amount of future dividends, future commodity prices, Zargon s expectation for uses of funds from financing, Zargon s capital expenditure program and the allocation and the sources of funding thereof, Zargon s cash flow and dividend model and the assumptions contained therein and the results there from, anticipated payout rates, 2017 and beyond production and other guidance and the assumptions contained therein, estimated tax pools, Zargon s reserve estimates, Zargon s hedging policies, Zargon s drilling, development and exploitation plans and projects and the results there from and Zargon s ASP project plans 2017 and beyond, strategic alternatives review process, the source of funding for our 2017 and beyond capital program including ASP, capital expenditures, costs and the results therefrom. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including 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 is 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 presentation 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. Barrels of Oil Equivalent - Natural gas is converted to a barrel of oil equivalent ( Boe ) using six thousand cubic feet of gas to one barrel of oil. In certain circumstances, natural gas liquid volumes have been converted to a thousand cubic feet equivalent ( Mcfe ) on the basis of one barrel of natural gas liquids to six thousand cubic feet of gas. Boes and Mcfes may be misleading, particularly if used in isolation. A conversion ratio of one barrel to six thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. 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. Estimated reserve values disclosed in this presentation do not represent fair market value. Discovered Petroleum Initially-In-Place ( DPIIP ) is that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially in place includes production, reserves, and contingent resources; the remainder is unrecoverable. 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

3 Zargon Statistical Overview Capitalization (1) Asset Profile Share Price (May 5, 2017) $0.57 Last Quarter Production (Q1 2017) Gas (MMcf/d) Liquids (bbl/d) % Liquids Total (boe/d) % of Production Basic Shares Outstanding Market Capitalization $17.5 North Dakota % % Net Debt (2) $35.1 Alberta Plains ,211 69% 1,765 68% Option Proceeds - Little Bow - ASP % % Entity Value $52.6 Last Quarter Daily Production ,016 78% 2, % 52-Week High $ Week Low $0.43 Net Debt Summary (2) Tax Pools ($mm) COGPE 0 Bank Debt $nil CDE 9 Conv. Debs (Extended to Dec. 2019) $41.9 CEE 6 Working Capital ($6.8) CCA 27 Net Debt $35.1 Losses 147 Other 3 Other Company Details Total 192 Employees Head Office Primary Exchange Listing Reserve Evaluators 16 Office 6 Field Calgary, Alberta, Canada TSE McDaniel (1) All numbers in $millions except per share values (2) Net debt calculated as convertible debentures plus net working capital as at March 31, 2017 Year End 2016 Reserves (McDaniel) Q1/2017 Prod. Oil (mbbl) Gas (mmcf) Total (mboe) PV10 ($mm) % Oil Oil RLI (yrs) Gas RLI (yrs) PDP 6,284 4,753 7, P+PDP 8,360 6,184 9, P+P 11,180 10,366 12,

4 Zargon Key Investment Highlights Zargon is a Canadian oil and gas producer that provides exceptional torque to higher oil prices, in addition to offering a variety of attractive oil exploitation opportunities including oil exploitation horizontal infill drills and a long term Southern Alberta tertiary recovery project. Oil Exploitation Focus Low Decline Oil Production Oil Exploitation Opportunities Control of Properties & Key Infrastructure Little Bow ASP Project Other Corporate Attributes Zargon is an oil-weighted company focused on the exploitation of mature oil properties Following a divestment program, Zargon s remaining operated oil reservoirs continue to be characterized by significant oil-in-place, low recovery factors and low oil production declines Zargon s current blended corporate oil decline of less than 10% per year is enabled by reservoir pressure support from natural aquifers, waterfloods and tertiary floods Zargon s properties provide waterflood optimization opportunities plus exploitation drilling opportunities that enable improved reservoir recovery factors in existing pools The McDaniel reserve report books 12 P+P exploitation locations with average per well parameters of 63 Mbbl oil reserves, 47 bbl/d initial rate and $0.93 MM all-in costs Very high working interest and operatorship across core operating areas, batteries and facilities. Majority of batteries and facilities have been upgraded in the last five years An actively managed abandonment and reclamation program At higher oil prices, the existing ASP infrastructure can be utilized to resume AS injections in high-graded areas and for multiple other ASP phases and Polymer only projects seeking a 10 percent incremental oil recovery on over 80 million barrels of working interest oil-in-place. Zargon holds ~$192 million of high quality tax pools (March 31, 2017), including $147 million of noncapital losses Zargon has retained a TSX listing, plus strong operating, accounting, land and finance capabilities, and can readily manage additional assets with minimal additional costs. 4

5 Recent Developments 5 Improved Q Results Debentures Amended Pro Forma Balance Sheet Improved Balance Sheet Zargon s reported improved Q results: Q1 production volumes of 2,579 boe/d were 5% higher than Q rates of 2,449 boe/d Q1 funds flow of $1.5 million ($0.05/share) were 64% higher than Q4 funds flow of $0.9 million Q1 field cash flow of $3.6 million was 7% higher than Q4 field cash flow of $3.3 million Efficient $2.5 million Q1 capital program (32% of 2017 capital budget) Zargon s Convertible Debentures were successfully amended in Q1 2017: Maturity date extended from June 30, 2017 to December 31, 2019 Interest rate increased to 8.0% per annum Conversion price reduced to $1.25 per share $15.6 million of debentures were redeemed at a cash cost of $14.8 million. By extending the debt maturities, Zargon s amended capital structure provides stakeholders significant time to realize Zargon s substantial option value relating to higher oil prices. Bank debt $nil Working Capital Positive $6.8 million Remaining Convertible Debentures $41.9 million Net Debt $35.1 million Q2-Q Hedges: 1,300 $69.24 Cdn./bbl with WTI-WCS diff at $19.50 Cdn./bbl

6 2017 Outlook 2017 Capital Budget Zargon s $7.8 million 2017 capital budget is allocated to $2.7 million for Little Bow polymer chemical purchases, $1.5 million of non discretionary land retention costs and $3.6 million to property/well reactivations, recompletions, waterflood modifications. Contingent on oil prices and/or Zargon s financial outlook, this budget may be expanded/modified to include undeveloped oil exploitation wells and/or the reactivation of Little Bow Alkaline Surfactant injections at high-graded focused areas. Zargon s 2017 site reclamation and abandonment budget remains at $1.5 million Projections Based on the $7.8 million 2017 capital budget, Zargon projects stable production volumes throughout calendar 2017 that exceed guidance levels of 2,500 boe/d. Zargon estimates that its 2017 corporate funds flow will increase approximately $1.2 million for every $5 US per barrel (WTI) increase in oil price. Without hedges, the price sensitivity increases to $4.4 million ($0.14 per share) for every $5 US per barrel (WTI) increase in oil price Next Steps Working with an improved balance sheet, Zargon s will continue to focus on cost control and low cost oil exploitation projects (property/well reactivations, recompletions, waterflood modifications) that efficiently add oil production and oil reserves. Recognizing that Zargon s assets are comparatively inexpensively priced and provide significant unrecognized oil price option value, Zargon will continue with its strategic alternatives process that may include a sale of all or part of the company, a financing, merger or other business combination. 6

7 Conventional Properties zargon.ca

8 Alberta Plains (excluding Little Bow ASP) The Alberta Plains properties provide low decline oil volumes with the potential for further development Alberta Plains Q production of 1,765 boe/d 71% liquids-weighted (16 32 o API) ~98% operated No drilling in due to capital allocation decisions; current decline is approximately 9% per year Drilling programs could provide production growth Multiple exploitation and development opportunities have been identified throughout Zargon s asset base including: 8 booked infill and exploitation drilling opportunities (McDaniel locations) Good 3D seismic coverage over key properties support an additional 8+ un-booked locations R 20 Bellshill Lake Little Bow Taber R 10 T 40 T 30 T 20 T 10 T 1 W4 8 Q Production % Liquids API OOIP Recovery to Date Gross Undeveloped Locations (boe/d) (%) ( ⁰ ) (MMbbl) (%) McDaniel Additional Bellshill Lake % % 5 1+ Taber % % 3 5+ Little Bow (Conventional) % % - tbd Alberta Other % n.a. n.a Total 1,765 69% % 8 8+

9 Alberta Plains Properties Overview (Excluding Little Bow ASP) Quarterly Expense ($M) 5,000 4,000 3,000 2,000 1,000 0 Alberta Operating Cost Trend (excluding ASP) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2-Q Forecast Operating Summary Q1/2017 Production 1,211 bbl/d (1,765 boe/d) 2017 Q2-Q4 op. cost forecast $3.05 million per quarter Reserves: McDaniel has recognized 8 gross (8.0) P+PUD locations and there is the potential of an additional 8+ locations Major R&M Base Opex Total Opex 1,500 Oil Production (bbl/day) 9 1,250 1, % annual core area decline rate (no wells drilled since 2015) 0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 McDaniel Reserve Summary (December 2016) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 2,889 3, TP 3,124 4, P+PDP 3,713 4, P+P * 4,453 5, * Includes new wells, tie-ins and reactivations

10 Alberta Plains Bellshill Lake Bellshill Lake produces low-decline oil with remaining infill drilling potential Low production declines Historical capital programs have kept production flat since 2010 Zargon operated, high working interest 100% Working interest in all Dina production Areally extensive Dina sand with aquifer pressure support Additional vertical wells in partially drained localized closures can be drilled when funding is available Low-risk, low-cost well pumping optimization projects should provide production gains in H API oil McDaniel Reserve Summary (December 2016) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP TP P+PDP 1,185 1, P+P 1,382 1, McDaniel has recognized 5 P+PUD locations, Zargon has defined 4 additional locations

11 Alberta Plains Taber Mannville The Taber property offers low-decline production with remaining development potential Sunburst development is seismically defined 30 horizontal wells drilled since on production, 5 on injection South pool is seeing stabilizing rates due to waterflood (vertical well historical production was negligible due to higher density oil) Estimated recovery to date ~10.1% Ultimate forecasted P+PDP recovery ~18% Estimated OOIP of 15.5 MMbbl North pool receives pressure maintenance from two vertical flank water injectors Estimated recovery to date ~ 16% and forecast ultimate P+PDP recovery ~ 21.7% based on estimated OOIP of 6.7 MMbbl McDaniel Reserve Summary (December 2016) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 1,068 1, TP 1,182 1, P+PDP 1,416 1, P+P 1,634 1,

12 Alberta Plains Little Bow Non-Unit Costs & Impact The Little Bow non-asp properties provide many low risk exploitation optimization opportunities, including: U&W Unit and G Unit: reactivation of waterflood schemes; entails reactivations of 6 producers, 3 water injectors and selected pipelines P Pool: initiate waterflood scheme with source well conversion, facility upgrades and 2 producer reactivations Enchant Pool: reactivate waterflood scheme with injector reactivation and 3 producer reactivations. Retlaw Non-Unit waterflood extension: initiate waterflood with two injector conversions, 3 producer reactivations and related battery upgrades (refer to oil cut curve below, which shows significant target oil) Total cost for these four optimization projects is approx. $2.5 million (over the next four quarters) which is forecast to add 180 bbl/d of low decline oil. Incremental reserves are not generally recognized in the McDaniel 2016 year end reserve report 100 Little Bow-Retlaw Non-Unit - Oil Cut Trend Oil Cut (%) McDaniel P+P (2016 YE) , , ,000 1,000,000 1,250,000 Cumulative Oil (bbl)

13 North Dakota Properties Undercapitalized area with high working interest, undeveloped land and horizontal drilling opportunities Long life conventional oil properties, average of 27 API gravity oil - Stable production, more than 15 MMbbl oil produced to date - Infrastructure and water disposal in place Established waterflood and unitized production Production optimization opportunities Includes undeveloped land with exploration opportunities Total 2P Reserves NPV 10 ~$26.2 MM (McDaniel year end 2016) 4 PUD locations Large OOIP with bypassed pay opportunities - Infill drilling potential in all of the properties (very low drilling density) exploitation projects include two Frobisher recompletions that could provide significant development potential. North Dakota Williston Basin geology is directly analogous to the offsetting Southeast Saskatchewan Williston Basin geology, however activity levels are substantially lower and the properties are less developed. Q Production OOIP Recovery to Date Decline Gross Undeveloped Locations (boe/d) (MMbbl) (%) (%) McDaniel Additional Haas % 3% 1 5+ Mackobee Coulee % 12% 3 7 Quarterly Expense ($M) 1,200 1, North Dakota Operating Cost Trend (High workover costs in Q & Q1 2017) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2-Q4 Truro % 11% None Forecast 13 Total % 7% Major R&M Base Opex Total Opex

14 Little Bow ASP (Tertiary EOR) zargon.ca

15 Little Bow ASP EOR in a mature Southern Alberta Waterflood ASP Modified Phase 2 Area ASP Facility & Gas Plant Future Polymer Project 15 ASP Phase 1 ASP Phase 1 Conformance Remediation & Extension Future ASP Phase Zargon Battery site ASP Central Facility Zargon constructed an Alkaline Surfactant Polymer ( ASP ) facility at Little Bow, Alberta, which enables the injection of dilute chemicals in a water solution to flush out undrained oil in existing reservoirs. At higher oil prices, the existing ASP infrastructure can be utilized for multiple ASP and Polymer only projects seeking a 10 percent incremental oil recovery on over 80 million barrels of working interest oil-in-place. Zargon W.I. (%) W.I. OIIP (mmbbl) ASP Phase 1 ( I Pool) North and Central Southern Area Future Potential Phases Remaining portions I&P Pools U&W Unit (D8D/H9H Pools) G Unit (B8B Pool) MM Unit (E8E Pool) C8C / X8X Pool Total 89

16 Little Bow ASP Project Zargon s Little Bow ASP project has shown good oil banking, but the combination of low oil prices and Zargon s weakened financial condition forced Zargon to idle the project in a manner that preserved future recoveries when reactivated. Phase 1 Alkali and Surfactant ( AS ) injections were suspended in Q1 2016, to reduce capital outflows during a very low oil price period. In September 2016, high water cut Phase 1 producers in AS under-treated areas South (Phase 1) were suspended, thereby bypassing the untreated reservoir and permitting full AS recoveries upon reactivation. With these 2016 operating adjustments, polymer and operating costs have been reduced to levels below our $0.7 million and $0.8 million (respectively), quarterly forecasts. With higher oil prices, AS injections can initially be resumed in high-graded Phase 1 areas and then a modified (truncated) Phase 2 area. Upper Mannville P Pool North Extension Central North South (Phase 1) Forecast Q Op. South cost (Phase of $1.0 2) million N.E. Spur 16 High water cut producers suspended, reducing fluid and oil production, but preserving ASP recovery opportunity for higher prices

17 ASP Enhanced Oil Recovery Process Dilute concentrations of chemicals (Alkali, Surfactant and Polymer) in water are injected into an existing oil pool to scrub out oil that waterflooding alone will not recover. Surfactants: Detergent; mobilizes trapped oil. Alkali: Increases surfactant effectiveness. Polymer (Thickener): Thickened water helps sweep oil from the reservoir. 1) ASP Injection A blend of Alkali, Surfactant & Polymer mobilizes trapped oil 2) Polymer Push Polymer displaces mobilized oil to producing wells 3) Terminal Waterflood Return to waterflood to complete oil displacement OIL BANK ASP POLYMER WATER 17

18 Analog ASP Performance (The Prize) Husky Taber Mannville B ASP Husky Gull Lake ASP The Taber Mannville B and Gull Lake ASP projects are good analogs to our Little Bow ASP project. Successful ASP projects provide stable production volumes for many years after the first three years of cost intensive AS injections are completed. With higher oil prices, and the reactivation of AS injections in phase 1 and subsequent phases, we continue to foresee many years of production growth followed by many years of free cash generating stable production for our Little Bow property. 18

19 2016 Year End Reserves Information zargon.ca

20 McDaniel Reserves Review (Year End 2016) Future Oil & Gas Production Oil Production Rate (bbl/d) 2,000 1,750 1,500 1,250 1, Oil Production Forecast (PDP & P+PDP) McDaniel Oil Reserves & Production Characteristics Team RLI (yrs) & 2017 Decline Rate (%/yr) PDP RLI (yrs) PDP Decline P+PDP RLI (yrs) P+PDP Decline Alberta (excl ASP) % % Little Bow ASP 11.0 n/a 15.7 n/a W.B. (ND) % % Zargon % % ,000 PDP from Base PDP from ASP PADP from Base PADP from ASP - The McDaniel report predicts a first year proved developed producing oil and liquids annual decline of 8 percent. - The corresponding proved developed producing oil and liquids reserve life is 8.8 years. - Zargon s mature, pressure supported reservoirs are characterized by low declines and long life indices for developed producing reserves Gas Production Rate (Mcf/d) 2,500 2,000 1,500 1, Gas Production Forecast (PDP & P+PDP) PDP from Base PDP from ASP PADP from Base PADP from ASP

21 McDaniel 2016 Year End Reserves Summary Reserve Category Oil & Liquids (mbbl) Sales Gas (mmcf) Total (mboe) B.Tax PV 10% ($ million) PDP 6,284 4,753 7,076 $ 84.3 Total Proved 7,152 6,381 8,215 $ 93.2 P+PDP 8,360 6,184 9,391 $ Proved & Probable 11,180 10,366 12,908 $ Proved developed producing (PDP) reserves comprise 55% of the total reserves and proved and probable developed producing (P+PDP) reserves comprise 73 % of the total reserves - On a total proved and probable basis, the Zargon reserve base is weighted 87% to oil and liquids - Strong operational performance resulted in net positive revisions of 1.17 and 1.36 mmboe in the PDP and P+PDP categories respectively

22 Net Asset Value Comparison McDaniel Year End Pricing NAV Calculation (Dec 31, 2016 Reserves) Proved + Prob. McDaniel Est. (BT DCF 10%) $ 132 million Undeveloped Land (Seaton Jordan evaluation) $ 2 million Deduct Net Working Capital & Conv. Deb. (unaudited) - $ 34 million Net Asset Value $ 100 million Zargon Proved + Prob. Net Asset Value $3.27 per share (30.61 million shares at Dec 31, 2016) Reserve Category McDaniel PVBT 10% ($ million) Net Asset Value ($ million) Net Asset Value ($/share) PDP Total Proved P+PDP Proved & Prob Zargon Valuation with Debentures at Face Value Common Shares (30.72 $0.57 on May 5, 2017) Debentures (41.9 $1,000 face value) Subtract Positive Working Capital (March ) Total Enterprise Value $ 17.5 million $ 41.9 million ( $ 6.8 million) $52.6 million 2017 Q1 Production (2,579 boe/d 78% oil/liquids) $20,400 per boe/d 2016 YE Reserves PDP (7.08 mmboe 89% oil/liquids) $ 7.43 per boe 2016 YE Reserves TP (8.22 mmboe 87% oil/liquids) $ 6.40 per boe 2016 YE Reserves 2PDP (9.39 mmboe 89% oil/liquids) $ 5.60 per boe 2016 YE Reserves 2P (12.91 mmboe 87% oil/liquids) $ 4.07 per boe 22 Zargon s current market valuation of $52.6 million is significantly less than the McDaniel proved developed producing analysis using McDaniel 2016 year end pricing.

23 Cash Flow Projections & Valuations zargon.ca

24 2017 (Q2-Q4) Cash Flow Parameters (excluding hedges) Production Oil Gas Equiv. Royalties 1,985 bbl/d 3.10 mmcf/d 2,500 boe/d (79% oil and liquids). 9% Alberta, 24% North Dakota (includes state and severance taxes) Other Parameters Oil Prices Gas Prices Exchange G&A Costs Interest WTI WCS diff.: $14.0 US/bbl; Zargon Field WCS diff.: $0.16 US/bbl premium $2.67/mcf Alberta average field price 0.73 $US/$Cdn $4.5 million (annualized) after 2016 reorganization and severance $3.4 million (annualized) revised debenture cost, no interest on cash balances 2017 Costs & Capital Operating $19.2 million (projected Q2-Q4 run rate annualized) Abd. & Reclam. $1.5 million ($0.1 million spent in Q1) US Taxes $ nil ASP Capital $2.7 million chemical costs ($0.5 million spent in Q1) Main. Capital $1.5 million non-discretionary land and other costs ($0.5 million spent in Q1) Exploit Capital $3.6 million ($1.5 million spent in Q1) 24

25 2017 (Q2-Q4) Projected Cash Flows (annualized) (excluding hedges) WTI Pricing (US/bbl) Field Pricing (Cdn./bbl) Field Cash Flow (million) Corporate Cash Flow (million) Free Cash Flow After All Capital (million) $45 $42.71 $11.7 $ 3.8 ($5.3) $50 $49.54 $16.1 $ 8.2 ($0.9) $55 $56.38 $20.4 $12.6 $ 3.5 $60 $63.21 $24.8 $17.0 $ 7.9 $65 $70.04 $29.2 $21.4 $ Cash Flow ($ millions) Zargon Cash Flow Field Cash Flow Corporate Cash Flow WTI Oil Price ($US/bbl) Zargon s cash flows are exceptionally sensitive to oil prices. This analysis examines cash flows for the remainder of the year, which have been annualized for comparative purposes. (For Q2-Q4 2017, assumes $5.3 million of capital and $1.4 million of abandonment/reclamation costs.) Excluding hedges, Zargon s assets provide a positive corporate cash flow down to less than $45 US/bbl WTI. At higher prices, Zargon s assets provide significant free cash flow that can be used to retire debt, reactivation and facility modification projects, drill high-graded horizontal oil exploitation wells and reinstate/initiate Little Bow ASP/Polymer floods.

26 Valuation using 2017 (Q2-Q4) projected (annualized) field cash flows WTI Pricing (US/bbl) Field Cash Flow (million) 4.5 Times Field Cash Flow (million) Zargon Net Debt (million) Attributed to Zargon Shares (million) Calculated Zargon Value (per share) $45 $11.7 $ 52.6 $ 35.1 $ 17.5 $0.57 $50 $16.1 $ 72.4 $ 35.1 $ 37.3 $1.21 $55 $20.4 $ 91.8 ($ 6.8) $ 98.6 $1.54 $60 $24.8 $111.6 ($ 6.8) $118.4 $1.84 $65 $29.2 $131.4 ($ 6.8) $138.2 $ Share Price ($ per share) Zargon Share Value Times Property Cash Flow WTI Oil Price ($US/bbl) Calculations reflect: $6.8 million of positive working capital as of March 31, 2017, $41.9 million of remaining debentures and 30.7 million shares outstanding. for $55+ cases, $41.9 million of remaining debentures are assumed to convert into Zargon shares at a $1.25 conversion price (33.5 million shares) taking the total outstanding shares to 64.2 million. Zargon s long-life oil reserves provide investor s with exceptional torque (both operational and financial leverage) to future increases in oil prices. A corporate valuation based on a 4.5 times property cash flow multiple suggests that significantly higher share prices may be realized if/when WTI oil prices move to higher levels.

27 Key Considerations Exceptional Torque to Deep Higher oil Discount Prices to NAV Investors buy Zargon at a discount to the proved developed producing net asset value when evaluated at prices at (or above) current strip. Zargon s long-life oil reserves provide investor s exceptional torque to higher oil prices: Financial Although improved, Zargon s balance sheet remains over-levered where small changes in underlying corporate value result in large inferred changes in share price. Operational Zargon s production tends to be from mature low-decline, low-rate wells with relatively higher operating costs. Small improvements in oil prices result in significantly improved cash flows. Exploitation Zargon s exploitation opportunities are significant, but generally require higher prices. Sustainable 2017 Corporate Model For 2017, Zargon expects to deliver stable production volumes. This forecast is based on $7.8 million of 2017 capital, which includes $3.6 million of reactivations, recompletions and facility upgrades that were not pursued in the prior two years due to financial constraints. With a sustainable 2017 business plan, investors are able to wait for materially higher oil prices (and the substantial upside to Zargon share price) without erosion of the underlying asset base. 27 Strategic Process Ongoing Zargon s Board and management believe that Zargon s share price has not been reflective of the fundamental value inherent in the Company. With the Q sale of Zargon s Williston Basin Saskatchewan and Killam Alberta assets, Zargon was able to eliminate all bank debt. With the Q restructuring of Zargon s convertible debentures, Zargon has deferred the debenture maturity until December 31, 2019, thereby permitting additional time to realize Zargon s unrealized oil exploitation value. Zargon continues to seek a strategic alternatives solution that will enable Zargon stakeholders to participate in Zargon s exceptional torque to higher oil prices.

28 Corporate Presentation May 10, 2017 zargon.ca