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Finding, Development and Acquisition Costs

In 2010, Zargon continued its emphasis on oil properties in the capital programs. Zargon's total proved finding, development and acquisition ("FD&A") costs, taking into account reserve revisions and changes in estimated future development capital, were $24.60 per barrel of oil equivalent. For calculation purposes, the $71.38 million of 2010 net capital additions was combined with an increase in estimated future development capital (excluding future Alberta drilling credits) for total proved reserves of $12.49 million ($20.29 million at December 31, 2010, compared to $7.80 million at December 31, 2009). If the change in future development costs is excluded, the 2010 proved FD&A costs, taking into account reserve revisions, were $20.93 per barrel of oil equivalent.

Zargon's 2010 proved and probable FD&A costs, taking into account reserve revisions and changes in estimated future development capital, were $21.18 per barrel of oil equivalent. For calculation purposes, the $71.38 million of 2010 net capital additions was combined with an increase in estimated future development capital (excluding future Alberta drilling credits) for proved and probable reserves of $8.24 million ($32.58 million at December 31, 2010, compared to $24.34 million at December 31, 2009). If the change in future development costs is excluded, the 2010 proved and probable FD&A costs, taking into account reserve revisions, were $18.98 per barrel of oil equivalent.

Proved and Probable Finding, Development and Acquisition Costs(1)

2010 2009 2008
Total net capital expenditures ($ millions)(2) 71.38 103.83 119.39
Total net capital expenditures plus change in forecast future development costs ($ millions)(2) 79.62 100.65 122.49
Proved and probable reserves (mmboe)
Open 32.24 29.72 26.91
Discoveries and extensions 3.07 1.78 2.48
Acquisitions and dispositions 1.53 4.22 3.54
Revisions (0.84) 0.12 0.18
Production (3.61) (3.60) (3.39)
Close 32.39 32.24 29.72
Proved and probable FD&A costs ($/boe)(3) 21.18 16.45 19.76
Proved and probable three-year FD&A costs ($/boe)(3) 18.83 19.57 21.35
  1. The aggregate of the exploration, development and acquisition 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, development and acquisition costs related to reserve additions for that year.
  2. Amounts exclude additions for administrative assets.
  3. Amounts are calculated including the change in future development costs.

Zargon's FD&A results for 2010 incorporate an active corporate and property acquisition program combined with a divestiture program of non-core minor properties. These activities collectively added 1.53 million barrels of oil equivalent proved and probable reserves at an average cost of $7.16 per barrel of oil equivalent (inclusive of future capital, but excluding future Alberta drilling credits).

In 2010, Zargon's corporate and net property acquisitions were $10.96 million. If the impact of the 2010 corporate and net property acquisitions is excluded, Zargon's proved and probable finding and development ("F&D") costs, including future development costs, would have been $30.79 per barrel of oil equivalent (2009 – $22.77 per barrel of oil equivalent).

Capital Program Performance

2010 2009 2008 Three-Year
Average
(2008–2010)
Corporate funds flow from
operating activities ($/boe)(1)		 20.44 24.01 31.57 25.21
Total Capital Program
(excluding future development costs)
Proved and probable
FD&A costs ($/boe)(2)		 18.98 16.97 19.26 18.32
Corporate recycle ratio(3) 1.08 1.41 1.64 1.38
Total Capital Program
(including future development costs)
Proved and probable
FD&A costs ($/boe)(2)		 21.18 16.45 19.76 18.83
Corporate recycle ratio(3) 0.97 1.46 1.60 1.34
  1. Corporate funds flow from operating activities including allowances for current taxes, interest and financing charges, transaction costs and general and administrative expenses on a barrel of oil equivalent production basis (6:1).
  2. FD&A costs taking into account reserve revisions during the year on a barrel of oil equivalent basis (6:1).
  3. The Corporate recycle ratio is defined as the funds flow from operating activities per barrel of oil equivalent divided by proved and probable finding, development and acquisition costs per barrel of oil equivalent. In the case of amounts for the capital program exclusive of net acquisitions/dispositions and corporate acquisitions, the funds flow per barrel of oil equivalent is divided by proved and probable finding and development costs.

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