Zapata Energy Corporation
TSX VENTURE : ZCO

Zapata Energy Corporation

August 28, 2009 09:00 ET

Zapata Energy Corporation: Higher Oil Production Strengthens Cash Flow

CALGARY, ALBERTA--(Marketwire - Aug. 28, 2009) - ZAPATA ENERGY CORPORATION (TSX VENTURE:ZCO) is pleased to report its financial and operational results for the second quarter and six months ended June 30, 2009. The Corporation's financial performance boosted quarter to quarter cash flow from operations to $3.9 million for the second quarter. Achievements during the quarter were as follows:

- Generated oil netback of $36.38 per bbl

- Achieved cash flow of $3.9 million ($0.23/share) for the second quarter of 2009

- Achieved cash flow of $7.4 million ($0.44/share) for the first half of 2009

- Production of 2,638 boe per day with greater than 50% oil and ngl, with 200 boe/d shut in due to low gas prices

- 10 well oil drilling program to begin at the end of the third quarter

- Expanding waterflood programs in East Central Alberta




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Three months ended June 30 Six months ended June 30
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2009 2008 Change 2009 2008 Change
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FINANCIAL
(Thousands unless
otherwise noted)
Gross revenue $ 9,576 $ 18,926 (49%) 19,898 $ 33,919 (41%)
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Cash flow from
operations 3,853 9,601 (60%) 7,372 16,336 (55%)
Per share
(basic) 0.23 0.56 (59%) 0.44 0.95 (53%)
Per share
(diluted) 0.23 0.56 (58%) 0.44 0.95 (53%)
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Net income (loss) (1,294) 1,447 (189%) (2,935) 2,532 (216%)
Per share
(basic) (0.08) 0.08 (192%) (0.18) 0.15 (219%)
Per share
(diluted) (0.08) 0.08 (193%) (0.18) 0.15 (220%)
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Capital
expenditures 2,806 5,042 (44%) 9,767 15,176 (36%)
Bank debt 49,250 37,650 31% 49,250 37,650 31%
Bank debt and
working capital
deficit 52,307 46,207 13% 52,307 46,207 13%
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Shares outstanding
(weighted average)
Basic 16,669 17,125 (3%) 16,682 17,177 (3%)
Diluted 16,669 17,290 (4%) 16,682 17,256 (3%)
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OPERATIONAL
(before realized
derivative
gain/loss)
Natural gas
sales (mcf/d) 7,586 8,624 (12%) 7,405 8,602 (14%)
Average sales
price ($/mcf) 3.59 10.00 (64%) 4.49 8.88 (49%)
Field netback
($/mcf) 1.71 6.00 (72%) 1.88 5.00 (62%)
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Oil sales (bbls/d) 1,238 1,108 12% 1,288 1,127 14%
Average sales
price ($/bbl) 59.98 109.11 (45%) 51.62 96.34 (46%)
Field netback
($/bbl) 36.38 65.07 (44%) 26.56 57.47 (54%)
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NGL sales (bbls/d) 136 212 (36%) 145 175 (17%)
Average sales
price ($/bbl) 40.82 87.93 (54%) 38.52 84.25 (54%)
Field netback
($/bbl) 20.84 70.86 (71%) 21.06 64.04 (67%)
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Total sales
(boe/d 6:1) 2,638 2,757 (4%) 2,667 2,735 (3%)
Average sales
price ($/boe) 40.59 81.87 (50%) 39.49 72.99 (46%)
Field netback
($/boe) 23.06 50.37 (54%) 19.19 43.49 (56%)
After Realized
derivative
gain/loss ($/boe) 2,638 2,757 (4%) 2,667 2,735 (3%)
(i) Average sales
price ($/boe) 39.88 75.43 (47%) 41.22 68.14 (40%)
(i) Netback
($/boe) 22.36 43.93 (49%) 20.93 38.63 (46%)
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(i) Includes realized gain (loss) on financial derivatives


Zapata's strong financial performance is attributed to high oil netbacks and more efficient field operations. Oil netbacks were $36.38 per bbl compared to $10.26 per boe compared with $17.38 in the first quarter. Meanwhile, natural gas netbacks were $10.26 per boe in the second quarter compared with $12.36 per boe in the prior quarter. Oil and NGLs accounted for 79% of Corporate field netbacks but only 52% of production. Improvements in operating efficiencies also contributed to the strong cash flow as second quarter operating costs were reduced to $10.78 per boe from $15.63 per boe in Q1 as more efficient operating procedures were implemented in March 2009. Zapata's higher ratio of oil to natural gas, its forward focus on oil projects and the higher field netbacks for oil are expected to contribute to a strong financial performance over the balance of 2009.

Zapata generated cashflow of $3.9 million ($0.23 per share) in the second quarter up 55 percent from the previous quarter prior to hedging activity. Zapata's average sales price in Q2 was $40.59 per boe compared with $38.40 per boe in the first quarter of 2009 as improved oil prices more than offset declines in gas prices. These prices generated field netback of $23.06 per boe in the second quarter of 2009 compared with $15.36 per boe in the first quarter. Capital expenditures in Q2 totalled $2.8 million and were mainly related to expansion of the waterflood.

The positive results from the Corporation's waterflood program's combined with the drilling program for oil are expected to improve the Corporation's sales by 15% and the Corporation's oil to natural gas ratio to over 60 percent oil. Currently Zapata is expanding its Silver area waterflood which continues to show positive results. During the quarter a water source well was completed and equipped and additional pipelines and pumps were installed to increase injection capacity. Zapata is waiting on government approvals for additional water injection to extend this waterflood. Three of the wells in Zapata's next drill program will be for extending and developing the waterflood. Preliminary work and requests for government approvals on other waterflood programs are in progress.

Notwithstanding the current low commodity prices, Zapata has been improving its field netbacks. In addition to focusing on oil, a diligent review of operating costs and implementation of new procedures has resulted in operating costs averaging $10.78 per boe in the second quarter 41% lower than $18.29 per boe in 2008.

Zapata is an oil and gas producer with significant proven reserves of both oil and gas. Zapata's strong land base in its core oil resource play in the prolific Eastern Alberta basin has numerous opportunities to develop and increase additional oil reserves through engineering and seismic programs. In addition to a large inventory of easily accessible oil prospects and development prospects, in the area, there are opportunities to increase reserves through additional waterfloods and tertiary recovery.

A 10 well drilling program in Zapata's core East Central Alberta oil producing area will be completed between September and November of 2009, to capitalize on the higher field netbacks for crude oil and the Alberta governments recently announced royalty credit program.

Looking forward it is anticipated that these 10 wells should take Zapata's 2009 exit production to between 2,900 and 3,100 boe/d (61% oil and ngls) while 200 boe/d of natural gas production will remain shut in as a result of low prices.

Zapata is a junior oil and gas production company operating in western Canada and trades on the TSX Venture Exchange under the symbol "ZCO."

This press release may include forward-looking statements which are statements other than of historical fact, such as information regarding drilling potential and production forecasts. Factors that could cause actual results to differ materially from our expectations include exploration and development risks, commodity prices and operating hazards. A barrel of oil equivalent (boe), derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil, may be misleading, particularly if used in isolation. A boe conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange has neither approved nor disapproved of the information contained herein.

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