15:09:35 EST Fri 06 Dec 2019
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or Name
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Condor Petroleum Inc (2)
Symbol CPI
Shares Issued 44,165,100
Close 2019-11-13 C$ 0.305
Recent Sedar Documents

Condor loses $2.93-million from continuing ops in Q3

2019-11-13 19:49 ET - News Release

Mr. Don Streu reports

CONDOR ANNOUNCES 2019 THIRD QUARTER RESULTS AND NEW COUNTRY INITIATIVE

Condor Petroleum Inc. has released its unaudited interim condensed consolidated financial statements for the three and nine months ended Sept. 30, 2019, together with the related management's discussion and analysis. These documents will be made available under Condor's profile on SEDAR and on the Condor website. 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.

Q3 2019 Highlights

  • The Company's wholly owned subsidiary, Falcon Oil & Gas Ltd ("Falcon") entered into a binding agreement to sell Falcon's 100% interests in the Shoba and Taskuduk production contracts and associated field equipment in Kazakhstan for USD 24.6 million (CAD 32.7 million at the current exchange rate of 1.33).
  • On November 12, 2019 Condor signed a Heads of Agreement with the Ministry of Energy of the Government of Uzbekistan which provides the Company with a 120 day exclusive window to negotiate a definitive production sharing agreement for five producing gas fields.
  • The Company has submitted an extension application to the Ministry of Energy of the Government of Kazakhstan and expects the exploration period to the Zharkamys Contract will be extended by 630 days commencing in late 2019.
  • Contract preparations are on-going with a farm-in partner to drill the Yakamoz 1 side-track well and a subsequent appraisal well in Turkey. A non-binding letter of intent and term sheet has been signed by both parties.
  • The reference natural gas sales prices in Turkey set by BOTAS, the state owned pipeline transportation company, were increased in both July and August of 2019 resulting in a Canadian Dollar terms price of $10.20 per Mscf as of November 1, 2019.

Shoba and Taskuduk Sale

Falcon entered into a binding agreement to sell Falcon's 100% interests in the Shoba and Taskuduk production contracts and associated field equipment in Kazakhstan for USD 24.6 million, or CAD 32.7 million at the current exchange rate of 1.33 (the "Sale Transaction"). The buyer is a non-listed international oil and gas group and has paid an initial deposit of USD 3.8 million (CAD 5.1 million at the current exchange rate of 1.33). The remaining amount ("Completion Payment") is due upon closing of the Sale Transaction ("Closing"), which is expected in the first quarter of 2020. The transaction requires various consents and confirmations from the Government of Kazakhstan and is subject to the satisfaction of certain commercial conditions that are customary for a transaction of this nature.

The Company intends to use the sale proceeds to: pursue larger value growth opportunities within the region; pay down amounts owing under its existing credit facility; conduct additional activities to increase natural gas production in Turkey; and resume Kazakhstan exploration activities once the 630 day exploration extension is formalized for the Zharkamys Contract.

Falcon remains the owner and operator of the oilfields until Closing occurs. At Closing, the Buyer will be entitled to reduce the Completion Payment by the amount of net revenues less costs generated from the production and sale of crude oil from the oilfields commencing sixty days following confirmation that the Buyer has paid the Deposit, provided a proof of funds letter demonstrating available funds to pay the Completion Payment and applied to the relevant authorities for the required Government of Kazakhstan consents.

Heads of Agreement with the Government of Uzbekistan

On November 12, 2019 Condor signed a Heads of Agreement ("HoA") with the Ministry of Energy of the Government of Uzbekistan ("Uzbekistan Ministry") which provides the Company a 120 day window to negotiate a definitive production sharing agreement ("PSA") with the Uzbekistan Ministry. The PSA, if executed, would include five producing gas fields and the associated gathering pipelines and gas treatment infrastructure along with the right to explore and develop certain exploration areas surrounding the current producing gas fields. The fiscal and operating terms expected to be defined in the PSA include royalty rates, cost recovery, profit splits, gas marketing and pricing, governance and steering committee structures and acquisition payments for the immoveable property in the fields.

Don Streu, President and CEO commented "We are excited about the potential investment opportunity in Uzbekistan. The country has been undergoing significant economic, legal, tax and social reforms under the guidance of President Shavkat Mirziyoyev and is ranked by the World Bank as one of the 20 economies where business climates have improved the most over the past year. It's the 16th largest gas producer in the world with established export routes to Europe and China. We firmly believe that our vast regional experience, application of new technologies and innovations can be successfully deployed in Uzbekistan to significantly increase existing field production."

Zharkamys Contract

The Company's Zharkamys exploration contract ("Zharkamys Contract") with the Ministry of Energy of the Government of Kazakhstan ("Ministry") was due to expire on December 14, 2016. Prior to this date, the Kazakhstan Chamber of International Commerce and subsequently the Kazakhstan Civil Court ("Civil Court") confirmed that a force majeure event had occurred which, under Kazakhstan subsurface use law, can be the basis for the Zharkamys Contract validity period to be extended for a period of 630 days. Pursuant to an appeal filed by the Ministry, the Kazakhstan Court of Appeal ("Court of Appeal") ruled in May 2017 that the force majeure event was not recognized and reversed the decision of the Civil Court. The Company referred the case to the Kazakhstan Supreme Court ("Supreme Court") and in November 2017 the Supreme Court ruling overturned both the Civil Court and the Court of Appeal rulings and referred the case back to the Civil Court for further review by a new panel of judges. In March 2018, the Civil Court ruling confirmed that the force majeure event had occurred. In April 2018, the Ministry appealed the Civil Court ruling and in May 2018 the Court of Appeal ruling upheld that the force majeure event had occurred. The Ministry did not appeal to the Supreme Court and the Company subsequently submitted an application to the Ministry and is in the process of preparing and seeking approvals for the various development projects required for the 630 day extension.

Continuing and Discontinued Operations Classification

Following the execution of the agreement for the Sale Transaction, as of September 30, 2019 the related Shoba and Taskuduk net assets and liabilities have been reclassified to assets and liabilities held for sale and the results of Shoba and Taskuduk operations are presented as discontinued operations for all current and prior periods throughout this news release. For further information relating to discontinued operations, please refer to Note 2 to the Company's unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2019 and 2018.

Continuing Operations

Contract preparations are on-going with a farm-in partner to drill the Yakamoz 1 side-track well and a subsequent appraisal well in Turkey. A non-binding letter of intent and term sheet has been signed by both parties. The Company previously drilled Yakamoz 1 and encountered numerous gas shows while drilling. A revised geological model has been created by integrating the Yakamoz 1 well data with recently reprocessed seismic data and has identified up-dip targets for the side-track. These side-track locations target both the proven Miocene and Upper Eocene reservoirs, in addition to the deeper Middle to lower Eocene reservoirs, which have not yet been tested. A successful Yakamoz 1 side-track well would be tied 2km into the existing Poyraz Ridge gas plant for processing and onward sales.

The Company produces natural gas and associated condensate in Turkey. The Company produced 19,267 boe in Turkey or an average of 213 boepd and received an operating netback 1 of $28.32 per boe for the three months ended September 30, 2019 (three months ended September 30, 2018: produced 59,960 boe or an average of 652 boepd and an operating netback 1 of $25.22 per boe). A stimulation workover program is being developed that is intended to realize commercial gas flow rates for the lower permeability reservoirs.

Cash used in continuing operations decreased to $0.8 million for the three months ended September 30, 2019 versus cash from continuing operations of $0.7 million for the same period in 2018.

 Selected Financial Results of Continuing Operations 
       For the three months ended September 30
        ($000's except per share amounts)
  
                                           2019   2018 

Natural gas and condensate sales           1,097  2,166
Cash from (used in) continuing operations  (805)   748
Net loss from continuing operations        (2,933)(4,654)
Net loss from continuing operations
per share (basic and diluted)              (0.07) (0.11)
Capital expenditures                       108    344

For the nine months ended September 30
($000's except per share amounts)
Natural gas and condensate sales           4,274  8,981
Cash from (used in) continuing operations  (1,526) 2,497
Net loss from continuing operations        (7,127)(7,484)
Net loss from continuing operations
per share (basic and diluted)              (0.16) (0.17)
Capital expenditures                       218  2,071

  Sales and operating netback1 for continuing operations for the three months ended September 30
 
 ($000's)                     Gas 2019 Condensate Total    Gas 2018 Condensate Total 
Sales                      1,033         64      1,097  2,166        -        2,166 
Royalties                   (131)        (9)      (140)  (262)       -         (262)
Production costs            (312)       (14)      (326)  (368)       -         (368)
Transportation and selling   (81)       (15)       (96)  (102)       -         (102)
Operating netback 1          509         26        535  1,434        -        1,434 
                                                                                    
($/boe)                                                                             
Sales                      56.92      86.14      58.07  38.09        -        38.09 
Royalties                  (7.22)    (12.11)     (7.41) (4.61)       -        (4.61)
Production costs          (17.19)    (18.84)    (17.26) (6.48)       -        (6.48)
Transportation and selling (4.46)    (20.19)     (5.08) (1.78)       -        (1.78)
Operating netback 1        28.05      35.00      28.32  25.22        -        25.22 
                                                                                    
Sales volume (boe)        18,149        743     18,892 56,860        -       56,860 

Sales and operating netback1 for continuing operations for the nine months ended September 30
 
 ($000's)                                                                
Sales                        4,111    163  4,274   8,716    265   8,981 
Royalties                     (509)   (22)  (531) (1,049)   (32) (1,081)
Production costs              (849)   (21)  (870) (1,183)   (12) (1,195)
Transportation and selling    (333)   (35)  (368)   (351)   (62)   (413)
Operating netback 1          2,420     85  2,505   6,133    159   6,292 
                                                                        
($/boe)                                                                 
Sales                        54.91  93.46  55.79   41.90 102.61   42.64 
Royalties                    (6.80)(12.61) (6.93)  (5.05)(12.31)  (5.13)
Production costs            (11.34)(12.04)(11.36)  (5.69) (4.80)  (5.67)
Transportation and selling   (4.45)(20.07) (4.80)  (1.68)(24.10)  (1.96)
Operating netback 1          32.32  48.74  32.70   29.48  61.40   29.88 
                                                                        
Sales volume (boe)          74,868  1,744 76,612 208,022  2,581 210,603 

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.

Results of Discontinued Operations

As noted above, the Company's subsidiary Falcon entered into a binding agreement to sell Falcon's 100% interests in the Shoba and Taskuduk production contracts and associated field equipment in Kazakhstan and accordingly the related activities are presented as discontinued operations.

Crude oil production in Kazakhstan increased 76% to 55,547 barrels or an average of 604 bopd for the third quarter of 2019 as compared to the third quarter of 2018 in which the Company produced 31,600 barrels or an average of 343 bopd.

During the third quarter, the Shoba 14 development well was drilled and began producing and the five well workover program at Shoba and Taskuduk was completed. Subsequent production averaged over 800 bopd for a fifteen day period but then decreased due to a well failure. Future workovers have been deferred due to the pending Shoba and Taskuduk Sale Transaction.

Crude oil sales increased to $2.1 million on 57,062 bbl or $36.33 per bbl for the three months ended September 30, 2019 (2018: $1.3 million on 32,174 bbl or $39.87 per bbl) and to $6.0 million on 160,878 bbl or $37.05 per bbl for the nine months ended September 30, 2019 (2018: $4.2 million on 105,747 bbl or $39.94 per bbl) due mainly to the higher production and sales volumes.

Overall production costs decreased to $10.12 per bbl for the three months and to $8.98 per bbl for the nine months ended September 30, 2019 from $12.37 per bbl for the three months and $10.99 per bbl for the nine months ended September 30, 2018 mainly due to the increase in oil production volumes.

We seek Safe Harbor.

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