Corporate Presentation

Transcription

1 Corporate Presentation February 12, 2018 zargon.ca

2 Forward Looking-Advisory Forward-Looking Statements - This presentation offers our assessment of Zargon's future plans and operations as at February 9, 2018, and contains forwardlooking 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, 2018 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 2018 and beyond, strategic alternatives review process, the source of funding for our 2018 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 YE 2017 Reserve Report Highlights Zargon s 2017 year end reserves were announced on February 12, Despite a restricted capital budget of $8.9 million (unaudited), Zargon s proved developed producing reserve additions replaced 84% of Zargon s 2017 production volumes (71% for proved and probable producing reserves). Proved and probable reserves: mmboe (87% oil and liquids) Proved and probable developed producing reserves: 9.12 mmboe (87% oil and liquids) Proved and probable developed producing oil and liquids reserve life: 11.3 years Proved and probable developed producing reserves net asset value: $100 million. 2,500 Zargon Operated Oil Production 3 Oil Production (bbl/day) 2,000 Little Bow ASP 1,500 North Dakota 1,000 Alberta (excluding ASP) Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Zargon s oil properties are pressure supported by waterfloods, tertiary recovery schemes or natural aquifers. Base corporate oil production decline is less than 10% per year. Stable production volumes can be delivered with low cost, exploitation (plumbing type) capital programs focused on waterflood and other enhancements. With additional funds, production growth can be delivered by drilling North Dakota and Taber undeveloped locations.

4 Recent Financial and Production Results Q Financial Results Zargon s Q results: Q3 funds flow of $1.76 million ($0.06/share) Q3 field cash flow of $3.27 million $1.77 million Q3 capital program focused on waterfloods and well reactivations 4 Q4 Production Pro Results Forma Balance Sheet Balance Sheet (at year end 2017) Zargon s Q Production Results: Q4 production volumes of 2,416 boe/d; 2017 annual production volumes of 2,531 boe/d, compares with 2017 guidance of 2,500 boe/d. Q4 oil and liquids production of 1,924 bbl/d; Q4 natural gas production of 2.95 mmcf/d, reflected shut-ins of uneconomic volumes due to low field prices. Zargon s capital structure (with only million shares outstanding) provides stakeholders a very substantial upside if higher WCS oil prices materialize. Bank debt $nil Working Capital Positive $3.5 million (unaudited) Convertible Debentures $41.9 million Net Debt $38.4 million (unaudited) Q Hedges: 1,000 $70.15 Cdn./bbl (WTI) Q Hedges: 1,000 $70.50 Cdn./bbl (WTI)

5 Zargon Key Investment Highlights Zargon is a Canadian and North Dakota 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. 5 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 divestment programs, Zargon s remaining operated oil reservoirs continue to be characterized by significant oil-in-place, low recovery factors and low oil production declines. Over its history, Zargon has raised $210 million of equity capital and paid out $367 million in dividends and distributions. Zargon s low corporate oil decline of less than 10% per year is enabled by reservoir pressure support from natural aquifers, waterfloods and tertiary floods. Consequently, stable oil production can be delivered through relatively small capital programs focused on waterfloods, reactivations and facility modifications. 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 13 P+P exploitation locations with average per well parameters of 63 Mbbl oil reserves, 49 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 (Sept. 30, 2017), includes $148 million of non-capital 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.

6 H Budget / Outlook H Capital Budget In November 2017, Zargon announced a $3.7 million H capital budget allocated $2.0 million to reactivations, recompletions and waterflood modifications, $1.0 million for Little Bow polymer chemical purchases and $0.7 million of land retention and other costs. Zargon also set the H site reclamation and abandonment budget at $1.0 million. These expenditures are expected to maintain compliance with the Government of Alberta s Directive 13 and Inactive Well Compliance programs, while delivering small improvements in our corporate Alberta Liability Management Ratio. Zargon s Alberta LMR is 1.34 (February 2018). H Projections H production volumes are now forecast at 2,525 boe/d (2,050 bbld and 2.85 mmcf/d, which incorporates reduced gas volumes related to the shut-in of uneconomic gas properties. The budgeted capital programs are fully funded by corporate cash flows at WCS oil prices of $50 Cdn./bbl, or better (before hedges). Without hedges, Zargon s price sensitivity for every $5 Cdn. per barrel (WCS) increase in oil price is an annualized $3.3 million ($0.11 per share) H Next Steps Zargon will continue to focus on cost control and low cost plumbing type oil exploitation projects 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 focused on unlocking this upside. The process may result in a sale of all or part of the company, a financing, merger or other business combination. 6

7 Cash Flow Projections & Valuations zargon.ca

8 2018 (H1) Cash Flow Parameters (excluding hedges) Production Oil Gas Equiv. Royalties 2,050 bbl/d 2.85 mmcf/d 2,525 boe/d (81% oil and liquids). 9% Alberta, 24% North Dakota (includes state and severance taxes) Other Parameters Oil Prices Gas Prices Exchange G&A Costs Interest Alta field price: WCS plus $1.0 Cdn./bbl ND field price WCS plus $9.0 Cdn./bbl $1.25/mcf Alberta average field price (assumed AECO price less $0.25/mcf adj.) 0.80 US/Cdn (assumed) $2.0 million (improved annualized rate of $4.0 million) $1.7 million revised debenture cost, no interest received on cash balances 2018 (H1) Costs & Capital Operating Abd. & Reclam. US Taxes ASP Capital Main. Capital Exploit Capital $9.6 million (annualized run rate of $19.2 million) $1.0 million (meets regulatory obligations while improving LMR) $ nil $1.0 million chemical costs (status quo polymer only) $0.7 million non-discretionary land and other costs $2.0 million (Bellshill optimizations, Little Bow non-asp waterfloods and recompletions, North Dakota waterflood optimizations); no wells to be drilled 8

9 2018 (H1) Projected Cash Flows (annualized) (excluding hedges) WCS Pricing (Cdn./bbl) Field Pricing (Cdn./bbl) Field Cash Flow (million) Corporate Funds Flow (million) Free Cash Flow After All Capital (million) $40 $32.66 $ 9.6 $ 2.3 ($7.1) $45 $47.66 $12.9 $ 5.6 ($3.8) $50 $52.66 $16.1 $ 8.8 ($0.6) $55 $57.66 $19.4 $12.1 $ 2.7 $60 $62.66 $22.7 $15.3 $ 5.9 Cash Flow ($millions) Zargon Cash Flow (annualized) Field Cash Flow Corporate Cash Flow WCS Oil Price ($Cdn./bbl) Zargon s cash flows are exceptionally sensitive to Western Canada Select ( WCS ) oil prices. WCS prices are calculated by subtracting the quoted WCS-WTI differential from NYMEX WTI prices and converting into Cdn. dollars. For 2017, the average WCS price was $38.17 US/bbl or $49.51 Cdn./bbl. Excluding hedges, Zargon s assets provide positive corporate funds flow at WCS oil prices down to $40 Cdn./bbl. At higher prices, Zargon s assets provide significant free cash flow that can be used to retire debt, or fund reactivation and facility modification projects, drill high-graded horizontal oil exploitation wells (North Dakota, Taber and Bellshill) and/or reinstate/initiate Little Bow ASP/Polymer floods.

10 Valuation using 2018 (H1) projected (annualized) field cash flows WCS Pricing (Cdn./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) $40 $ 9.6 $ 43.2 $ 38.4 $ 4.8 $0.16 $45 $12.9 $ 58.0 $ 38.4 $ 19.6 $0.64 $50 $16.1 $ 72.9 $ 38.4 $ 34.5 $1.12 $55 $19.4 $ 87.3 ($ 3.5) $ 90.8 $1.41 $60 $22.7 $107.5 ($ 3.5) $110.0 $1.71 Share Price ($/share) Zargon Share Value 4.5 Times Property Cash Flow WCS Oil Price ($Cdn./bbl) Above valuation is based on a 4.5 times property multiple and, $3.53 million of positive working capital as of Dec. 31, 2017, $41.94 million of remaining debentures and million shares outstanding. for the $55 and $60/bbl WCS cases, $41.94 million of debentures are assumed to convert into Zargon shares at a $1.25 per share (33.55 million shares) taking the total outstanding shares to million. Zargon s long-life oil reserves provide investors 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 are justifiable at WCS prices of $45 Cdn./bbl or better.

11 Key Considerations Exceptional Torque to Deep Higher oil Discount Prices to NAV Investors buy Zargon at a discount to the McDaniel proved developed producing net asset value. Zargon s long-life oil reserves provide investors 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 larger scale exploitation opportunities are significant; At current prices, the North Dakota and Taber undeveloped locations provide attractive returns. Sustainable 2018 Corporate Model Zargon s H corporate budget is forecast to deliver 2,525 boe/d of production, essentially consistent with 2017 guidance levels. This forecast (including liability management) can be completely financed from corporate cash flows at WCS oil prices in excess of $50 Cdn./bbl. With a sustainable H 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. Strategic Process Zargon s Board and management believe that Zargon s share price has not been reflective of the fundamental value inherent in the Company. Zargon continues to seek a strategic alternatives solution that will enable Zargon stakeholders to participate in Zargon s exceptional torque to higher oil prices. 11

12 Conventional Properties zargon.ca

13 Alberta Exploitation Core Areas Recent base annual oil production declines of less than 10 percent have been more than offset by oil exploitation projects (waterfloods, reactivations, and facility modifications). Similar projects and results are forecast for the H Bellshill Lake Little Bow non-asp Little Bow ASP Taber 13 Excluding the Little Bow ASP project, the Alberta core areas are mature operated oil properties, with low decline rates and waterflood and pressure supported exploitation opportunities. Taber and Bellshill Lake also provide undeveloped oil exploitation locations. 13

14 Alberta Plains (excluding Little Bow ASP) Q production of 1,543 boe/d No drilling in due to capital allocation decisions; less than 10% annual decline is offset by waterflood and reactivation expenditures. Multiple exploitation and development opportunities have been identified throughout Zargon s asset base. 3D seismic coverage supported booked and un-booked locations 8 booked infill and exploitation drilling McDaniel locations. 67% liquids-weighted (16 32 o API) and ~98% operated. Q Prod % 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 1,543 69% % 8 8+ McDaniel Reserves Summary (December 2017) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 2,692 3, Waterflood and reactivation projects stabilize production (no wells have been drilled since 2014) TP 2,964 4, P+PDP 3,478 4, P+P 4,255 5,

15 Alberta Plains Bellshill Lake Bellshill Lake produces low-decline rate 27 API oil with remaining infill drilling potential. 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 water handling expansion that was completed in Q will provide multiple for multiple low-risk, low-cost well pumping optimization projects in H Proved Developed Producing Oil Rate Profile 15 McDaniel Reserves Summary (December 2017) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP TP P+PDP 1,041 1, P+P 1,298 1, McDaniel has recognized 5 P+PUD locations Zargon has defined 4 additional locations Oil Production Rate (bbl/day) Bellshill Lake History McDaniel 2017 YE Fcst McDaniel YE 2016 estimate Reported 2017 oil volumes showed flattening decline production trends. Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

16 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 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 South pool oil rates are stabilizing due to waterflood effects (vertical well historical production was negligible due to higher density oil) Estimated recovery to date ~10% Ultimate forecasted P+PDP recovery ~18% Proved Developed Producing Oil Rate Profile Estimated OOIP of 15.5 MMbbl 900 McDaniel Reserve Summary (December 2017) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 1,032 1, TP 1,144 1, P+PDP 1,369 1, P+P 1,586 1, Oil Production Rate (bbl/day) Reported 2017 oil volumes showed flattening production decline trends. Taber History McDaniel 2017 YE Fcst McDaniel YE 2016 estimate 16 0 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

17 North Dakota Properties Long life conventional oil properties, average of 27 API gravity oil - Stable production, large OOIP, more than 15 MMbbl oil produced. - Infrastructure and water disposal in place. - Infill drilling potential at each property (very low drilling density). - Oil price is based LSB stream, a significant premium to WCS crude. Established waterflood and unitized production Ongoing waterflood modifications and reactivations are increasing production. 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. McDaniel Reserve Summary (December 2017) 17 Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 1,674 1, TP 1,941 1, P+PDP 2,211 2, P+P 2,650 2, Q Production OOIP Recovery to Date Decline Gross Undeveloped Locations (boe/d) (MMbbl) (%) (%) McDaniel Additional Haas % 4% 1 5+ Mackobee Coulee % 11% 3 7 Truro % 7% 1 2 Total % 6% Oil Production Rate (bbl/day) Proved Developed Producing Oil Rate Profile North Dakota History McDaniel 2017 YE Fcst McDaniel YE 2016 estimate Reported 2017 oil volumes show improving rates from waterflood projects, that are expected to exceed McDaniel 2017 projections Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

18 Little Bow ASP (Tertiary EOR) zargon.ca

19 Little Bow ASP EOR in a mature Southern Alberta Waterflood ASP Modified Phase 2 Area ASP Facility & Gas Plant ASP Phase 1 Future Polymer Project ASP Phase 1 Conformance Remediation & Phase 2 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. 19 McDaniel Reserve Summary (December 2017) Liquids (Mbbl) Total (Mboe) PV 10% ($MM) PDP 1,638 1, TP 1,939 1, P+PDP 2,263 2, P+P 3,918 4, 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

20 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 higher oil prices, AS injections can initially be resumed in high-graded Phase 1 areas followed by a refined Phase 2 area and then ultimately the U&W Unit. Upper Mannville P Pool North Extension Central North South (Phase 1) South (Phase 2) N.E. Spur Forecast Q Op. cost of $1.0 million 600 Proved Developed Producing Oil Rate Profile 20 Production plot shows Fall 2016 rate reduction to preserve long term re-start optionality and also shows recent positive oil banking in the Central area. Oil Production Rate (bbl/day) McDaniel YE 2016 estimate Reported 2017 oil volumes show improving rates that had exceeded McDaniel YE 2016 proved developed producing reserve forecasts. Little Bow ASP History McDaniel 2017 YE Fcst Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

21 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 21

22 Analog ASP Performance (The Prize) Husky/CNRL Taber Mannville B ASP Husky/Whitecap 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 early 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 the potential for many years of production growth followed by many years of free cash generating stable production for our Little Bow property. 22

23 Additional Information zargon.ca

24 Zargon Statistical Overview (Q3 Results) Capitalization (1) Share Price (Nov. 10, 2017) $0.455 Basic Shares Outstanding Market Capitalization $14.0 Net Debt (2) $36.7 Option Proceeds - Entity Value $50.7 Zargon Production and Financial Statistics (since Q property sales) Four Qtr. Comparisons Q Q Q Q Total/Avg. Change Q3-17 over Q4-16 Oil Prod. (bbl/d) 1,952 2,016 1,921 2,037 1, % Gas Prod. (mmcf/d) % Equiv. Prod. (boe/d) 2,449 2,579 2,500 2,628 2, % 52-Week High $ Week Low $0.405 Net Debt Summary (2) Bank Debt $nil Convertible Debs ( Dec. 2019) $41.9 Working Capital ($5.2) Net Debt $36.7 Other Company Details Employees 15 Office 5 Field Head Office Calgary, Alberta, Canada Primary Exchange Listing TSE Reserve Evaluators McDaniel (1) All numbers in $millions except per share values (2) Net debt calculated as convertible debentures plus net working capital as at September 30, Revenue & Hedges ($ million) % Royalties ($ million) % Op. Costs ($ million) % Property Cash Flow ($ million) % G&A Costs ($million) % Interest & Other ($ million) % Corp. Funds Flow ($ million) % Capital ($ million) % Abd. & Reclaim ($million) % In Q3 2016, Zargon sold significant assets in order to eliminate bank debt. Since then, production and financial results have steadily improved: Production volumes have increased 7.3% (after replacing base declines), by virtue of a $7.84 million (four quarters) oil exploitation capital program. Revenue has increased by 2.9%, operating costs were stable, G&A has declined substantially. Consequently, corporate funds flow has increased by 105%.

25 McDaniel Reserves YE 2017 Review (based on McDaniel Dec. 31, 2017 Pricing) NAV Calculation (Dec 31, 2017 Reserves) Proved + Prob. McDaniel Est. (BT DCF 10%) Undeveloped Land (Seaton Jordan evaluation) Deduct Net Working Capital & Bank Debt Net Asset Value Zargon Proved + Prob. Net Asset Value $ 119 million $ 2 million - $ 38 million $ 83 million $2.71 per share (30.80 million shares; assumes no dilution from debentures) NAV estimates do not include site reclamation and abandonment costs for non-producing assets. Reserve Category McDaniel PVBT 10% ($ million) Net Asset Value ($ million) Net Asset Value ($/share) PDP Total Proved P+PDP Proved & Prob McDaniel Oil Reserves & Production Characteristics Team RLI (yrs) & 2018 Decline Rate (%/yr) PDP * RLI (yrs) PDP Decline P+PDP * RLI (yrs) P+PDP Decline Alberta (excl ASP) % % Little Bow ASP % 13.1 n/a W.B. (ND) % % Zargon % % * Note: RLI based on annualized Q oil production 1,012 2,323 2,192 6,928 Total Reserves (mboe) Proved Producing Probable Producing Proven Undeveloped & nonproducing Probable Undeveloped & nonproducing 25

26 Corporate Presentation February 12, 2018 zargon.ca