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Oryx Petroleum Second Quarter 2017 Financial and Operational Results

02 August 2017

Calgary, Alberta, August 2, 2017

 

Stable production and payment for oil sales; successful drilling and completion of the ZAB-1 sidetrack well; restructuring of obligations and equity recapitalization completed

 

Oryx Petroleum Corporation Limited (“Oryx Petroleum” or the “Corporation”) today announces its financial and operational results for the three and six months ended June 30, 2017. All dollar amounts set forth in this news release are in United States dollars, except where otherwise indicated.

 

Q2 2017 Financial Highlights:

  • Total revenues of $7.1 million on working interest sales of 168,800 barrels of oil (“bbl”) and an average realised sales price of $37.93/bbl
    - The Corporation has received full payment in accordance with production sharing contract entitlements for all oil sales into the Kurdistan Export Pipeline through May 2017 
  • Operating expenses of $4.0 million ($23.89/bbl) and a negative Oryx Petroleum Netback of $1.15/bbl
    - Lower operating expenses versus Q1 2017
  • General and administrative expenses of $2.5 million
    - Unchanged versus Q1 2017 but higher than Q2 2016 due to the inclusion of approximately $0.8 million of costs for technical support that had been applied to capital projects in periods prior to 2017 
  • Net loss of $9.2 million ($0.03 per common share) versus net loss of $11.4 million ($0.05 per common share) in Q2 2016
  • Net cash used in operating activities of $1.2 million versus $0.9 million in Q2 2016. Q2 2017 result consists of negative Operating Cash Flow of $2.1 million partially offset by a $0.9 million decrease in non-cash working capital
  • Net cash used in investing activities was $10.9 million and includes payments related to drilling and facilities work in the Hawler license area, seismic processing and interpretation costs in the AGC Central license, and the settlement of the finance lease obligation related to the Hawler production facilities 
  • $57.4 million of cash and cash equivalents as of June 30, 2017

 

Operations Update:

  • Average gross (100%) oil production of 2,900 bbl/d in Q2 2017
    - Production impacted by a planned shut-in of the Zey Gawra-1 sidetrack well (“Zeg-1ST well”) for eight days in May in connection with the drilling of the ZAB-1 sidetrack well (“ZAB-1ST well”)
    - Average gross (100%) oil production of 2,900 bbl/d in July 2017
  • Drilling and completion of the ZAB-1ST well
    - The ZAB-1ST well was drilled to a measured depth of 2,069 metres and completed in the Cretaceous reservoir in the Zey Gawra field of the Hawler license area
    - The well was successfully completed and allowed to flow through a small choke while cleaning up with bottom hole and surface pressures being monitored. During the clean-up flow period that spanned approximately a week production of the 35 degree API oil was restricted to approximately 350 barrels per day with gas-oil ratio varying from 950 to 1,150 standard cubic feet per barrel and with the water cut varying from 0 to 3%. Initial results indicate that the well has a higher productivity than the Zeg-1ST well prior to acid stimulation. The well is currently shut-in for a final pressure build up measurement and an acid stimulation treatment will be performed within the next few days.
    - Data collected during drilling of the ZAB-1ST well included measurements of pressure at a series of points in the Zey Gawra Cretaceous reservoir providing a basis for estimating the depths of the gas-oil contact and the free water level in the reservoir. This information together with well performance data to be acquired over the coming weeks will provide an improved basis for estimating the maximum efficient rate of withdrawal and ultimate recovery from the Zey Gawra Cretaceous reservoir and, consequently, determining future development plans and estimating oil reserves.
    - The Tertiary reservoir was also evaluated during the drilling of the ZAB-1ST well. The presence of an oil column was confirmed based on logging and pressure data collected. However, the Corporation does not believe the oil column is of sufficient size to warrant drilling targeting the Tertiary reservoir at Zey Gawra in the near term
  • Workovers of the Demir Dagh-8 and Demir Dagh-7 wells in the Cretaceous reservoir
    - The rig used to drill the ZAB-1ST well has now moved to the Demir Dagh field to recomplete the Demir Dagh-8 and Demir Dagh-7 wells targeting the Cretaceous reservoir. These operations are expected to be completed in Q3 2017 
  • Preparations for the drilling of additional wells at the Zey Gawra field targeting the Cretaceous reservoir are ongoing with drilling now expected to commence in Q4 2017 subject to performance of the existing two producing wells over the coming weeks 
  • Fast-track processing of 1,921 km2 of 3D seismic data covering the AGC Central license area is complete, with full processing and interpretation ongoing
    - Preliminary interpretation of the data is positive with exploration drilling expected to commence in late 2018 or early 2019

 

Forecasted Work Program and Capital Expenditures:

  • Oryx Petroleum re-forecasted cash capital expenditures for the second half of 2017 are $16 million, reduced from the previous forecast of $29 million:
    - Reflects a decision to reschedule further drilling at Zey Gawra to Q4 2017 and the addition of the Demir Dagh-7 workover to the program

 

Restructuring of Obligations:

  • On April 28, 2017, The Addax and Oryx Group (“AOG”) and the Corporation agreed to amend the Loan Agreement dated March 11, 2015 (the “Loan Agreement” and the “Loan Amendment”)
    - Maturity date extended from March 10, 2018 to July 1, 2019
    - Interest accrued after May 11, 2017 to be paid out in common shares of the Corporation (“Common Shares”) approximately every six months, rather than in cash upon maturity
    - The Loan Amendment has been approved by disinterested shareholders and accepted by the Toronto Stock Exchange
    - As at June 30, 2017, the balance owed under the Loan Agreement was $77.1, including $1.1 million in accrued interest which will be settled through the issuance of Common Shares 
  • An agreement was reached on June 7, 2017 with the vendor of the Hawler license area to restructure the contingent consideration obligation. The Corporation is obligated to make a further payment to the vendor of the Hawler license area contingent upon the declaration of commerciality of a second discovery in the Hawler license area
    - In consideration for the restructuring, a non-contingent and non-refundable payment of $5 million plus accrued interest was settled on August 1, 2017 and has been applied against the contingent consideration obligation
    - Subject to the declaration of commerciality of a second discovery, the remaining principal balance plus accrued interest is to be paid in four annual instalments beginning September 30, 2018
    - As at June 30, 2017, the total balance of principal and accrued interest owed under the obligation was $76.2 million (including the payment of $5.4 million made on August 1, 2017)

 

Equity Subscriptions:

  • The equity subscriptions by AOG and Zeg Oil and Gas Ltd (“Zeg Oil and Gas”) for a total of 161,850,057 Common Shares for aggregate consideration of $54.1 million (the “Shareholder Subscriptions”) closed on June 20, 2017
    - AOG subscribed for 131,933,226 Common Shares at $0.33426 per Common Share, resulting in an aggregate subscription price of $44.1 million, $20 million of which was paid at closing in cash and the balance of which was paid through the extinguishment of $24.1 million of principal and accrued interest owing under the Loan Agreement
    - Zeg Oil and Gas subscribed for 29,916,831 Common Shares at $0.33426 per Common Share, resulting in an aggregate subscription price of $10 million paid at closing in cash

 

Liquidity Outlook:

  • The Corporation expects that cash on hand as of June 30, 2017 and cash receipts from net revenues will allow it to fund its forecasted cash expenditures and operating and administrative costs and to meet its obligations through the end of 2018. Capital expenditures beyond those currently forecasted in 2018 will likely require access to additional funding

 

CEO’s Comment
Commenting today, Oryx Petroleum’s Chief Executive Officer, Vance Querio, stated:
“During Q2 2017 we maintained fairly stable production and sales. Gross (100%) oil production averaged 2,900 bbl/d in Q2 2017 with all production sold via the export pipeline and payments for export sales through the end of May received in full.

In recent weeks we have successfully drilled and completed the ZAB-1ST well as a producer in the Cretaceous reservoir at the Zey Gawra field. The well is now being prepared for acid stimulation and we expect to have it on production before the end of August at a rate similar to that of the Zeg-1ST well. The rig that was used to drill the ZAB-1ST well has now been moved to Demir Dagh where it will complete the workovers of the Demir Dagh-8 and Demir Dagh-7 wells both targeting the Cretaceous reservoir. Results of these wells are expected in Q3 2017.

Fast-track processing of the approximately 2,000 km2 of 3D seismic data covering the AGC Central license area is complete with full processing and interpretation ongoing and expected to be completed later this year. Initial results are very encouraging with several large prospects identified. In the coming months we will begin preparations for an exploration drilling program that we expect to commence as early as late 2018. We expect the AGC Central license to be a very important determinant of our value in the future.

We have modified our capital program for the second half of 2017 and early 2018. We now plan to drill two rather than three further wells at Zey Gawra. The drilling of the next well targeting the Zey Gawra Cretaceous is now expected in Q4 2017 with spudding of the second well expected in Q1 2018. The third well originally planned to target the Tertiary reservoir at Zey Gawra has been deferred indefinitely. We have also added a workover of the Demir Dagh-7 well to the program.

In June, we completed the restructuring of our key obligations and a recapitalisation of our balance sheet. The agreement with AOG to amend the credit facility’s repayment terms was approved by disinterested shareholders and accepted by the Toronto Stock Exchange. We also reached an agreement with the vendor of the Hawler license to restructure the contingent consideration obligation, and equity subscriptions by AOG and Zeg Oil and Gas in consideration for cash and debt extinguishment have closed. The restructuring of our obligations and the equity subscriptions have provided us with the liquidity and financial flexibility needed to execute our capital program in 2017 and 2018.

We look forward to implementing our plans for continued appraisal, development and exploration of our core assets.”

 

Oryx_Petroleum_Press_Release_Q2_Results_2017.pdf