Zargon reported its financial results for the first quarter of 2010. Funds flow from operating activities was $22.24 million ($0.85 per diluted trust unit) in the 2010 first quarter compared with $24.75 million ($0.95 per diluted trust unit) in the 2009 fourth quarter and $17.85 million ($0.84 per diluted trust unit) in the 2009 first quarter.
Highlights from the three months ended March 31, 2010 are noted below:
Oil and liquids production averaged 5,554 barrels per day in the 2010 first quarter, a one percent increase from the preceding quarter and a 22 percent increase from the corresponding 2009 quarter. Reflecting Zargon's emphasis on oil exploitation, in the first quarter oil and liquids production was 55 percent of total production based on a six to one oil equivalent basis compared to 52 percent in the previous quarter. Further oil production increases are anticipated for the balance of 2010 as recently drilled wells are placed on production and new production is added throughout the year from our oil weighted drilling program.
Natural gas production volumes in the first quarter of 2010 averaged 27.05 million cubic feet per day, a 12 percent decrease from the previous quarter and a three percent decrease from the corresponding period of 2009. The first quarter 2010 natural gas production decreased primarily due to natural declines, the passing of flush production volumes at our non-operated Kakut gas wells, third party processing shut-ins and weather related outages. Over the next few months, we are anticipating very low natural gas prices and, accordingly, we are restricting our field natural gas capital programs to high-graded workovers, stimulations and the drilling of selected wells that advance long term exploitation projects. Consequently, for the remainder of the year, we anticipate that our corporate natural gas production volumes will show minor declines until we reactivate our natural gas capital programs in the fourth quarter.
Zargon's first quarter field capital program totaled $15.07 million, an 18 percent increase from the 2009 first quarter field capital expenditures. During the quarter, Zargon drilled 14 gross wells (12.8 net) that resulted in 11.5 net oil wells and 1.3 net natural gas wells for a 100 percent success ratio. The drilling program included two Killam natural gas wells, three Bellshill oil wells, three Taber horizontal oil wells and one Killam horizontal oil well in the Alberta Plains core area, plus two Manor horizontal oil wells, one Steelman horizontal oil well and one Frys (Fertile) horizontal oil well in the Williston Basin core area and finally one oil well (Spirit River) in the West Central Alberta core area. This oil focused exploitation program delivered strong predictable results although increased production volumes from selected Williston Basin and Taber horizontals have been delayed until later this spring due to spring break-up and regulatory spacing approval delays.
In the upcoming spring-summer months, Zargon will proceed with an oil exploitation focused drilling program that, in the Williston Basin core area, will include three Steelman Frobisher horizontals, three Elswick Midale horizontals and another Bakken/Torquary horizontal well at Cromer, Manitoba. In the Alberta Plains core area, two gas exploitation wells at Jarrow and one horizontal oil exploitation well at Taber are planned. In West Central Alberta, two Doig natural gas development targets at Kakut on the Peace River Arch and one vertical Banff oil exploitation well at Highvale South are planned.
In the first quarter of 2010, the purchase of 11 thousand net acres of Crown lands at an average price of $50 per acre allowed Zargon to partially offset expiries and sales resulting in a quarter end undeveloped land inventory of 516 thousand net acres, down 24 thousand net acres from the balance reported at the end of 2009.
In addition to our field related activities, Zargon seeks to make additional corporate or property acquisitions that can be funded by bank debt or equity issuances. We continue to believe that we will be able to conclude transactions this year that bring either tax pools and/or oil-in-place and/or gas-in-place resources that we can exploit. To this end, during the quarter Zargon incurred $3.56 million of net property acquisitions arising from the acquisition of $4.56 million of properties (primarily consisting of wells in the Provost area), less $1.00 million of miscellaneous property dispositions.
Subsequent to quarter end, Zargon entered into an agreement to purchase working interests in various Southern Alberta medium and heavy gravity oil pools with approximately 350 barrels of oil equivalent per day of existing production, along with approximately 5.8 thousand net undeveloped acres of land, for a cash purchase price of approximately $25 million. The majority of these assets are either situated adjacent to or in the vicinity of our Little Bow property. These assets bring significant volumes of oil-in-place that may, in part, be amenable to tertiary recovery methods through our proposed Little Bow Alkaline Surfactant Polymer ("ASP") chemical flood project.
Concurrently, we are attempting to capitalize on the current industry enthusiasm for oil projects by packaging and marketing some of our non-core minor oil properties that are producing 375 barrels of oil equivalent per day and, subsequent to quarter end, we concluded the sale of 2.5 net sections of mostly non-operated Cardium rights at Pembina for $6.30 million.
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