Zargon Oil & Gas Ltd. Announces 2011 Fourth Quarter and Full Year Financial Results

Zargon Oil & Gas Ltd. ("Zargon" or the "Company") (TSX:ZAR). 

HIGHLIGHTS FROM THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2011



--  Fourth quarter 2011 oil production averaged 5,619 barrels of oil and
    liquids per day, a five percent gain over the preceding quarter. This
    increase in oil and liquids production was due to new production coming
    from an active fall drilling program. Fourth quarter natural gas
    production averaged 21.96 million cubic feet per day, essentially
    unchanged from the prior quarter. Total fourth quarter production was
    9,278 barrels of oil equivalent per day, a three percent increase from
    the prior quarter. 
--  Fourth quarter funds flow from operating activities of $17.10 million
    ($0.58 per diluted share) were 17 percent higher than the $14.59 million
    ($0.50 per diluted share) recorded in the prior quarter, and 19 percent
    higher than the $14.40 million ($0.54 per diluted share) reported in the
    fourth quarter of 2010. Funds flow from operating activities for the
    fourth quarter of 2011 included reductions of $2.34 million of realized
    derivative losses and $1.81 million of asset retirement expenses. 
--  Monthly cash dividends of $0.10 per common share were declared in the
    fourth quarter of 2011 for a total of $8.79 million ($7.27 million after
    accounting for the common shares issued under the Dividend Reinvestment
    Plan ("DRIP") in lieu of cash dividends). These cash dividends (net of
    the DRIP) were equivalent to a payout ratio of 43 percent of funds flow
    from operating activities. 
--  During the quarter, exploration and development capital expenditures
    (excluding property acquisitions and dispositions) were a robust $23.71
    million for field related programs and included the drilling of 11.5 net
    wells which resulted in 9.0 net oil wells and 2.5 net abandonments. In
    the quarter, Zargon acquired a net $1.08 million of properties and $0.09
    million of administrative assets which took the total net capital
    expenditure to $24.88 million. 
--  For calendar 2011, oil and liquids production averaged 5,468 barrels of
    oil and liquids per day, a three percent decrease from the preceding
    year. The decrease was due, in part, to spring-summer flood-related
    Williston Basin shut-ins and mid-year oil property dispositions.
    Calendar 2011 natural gas production averaged 21.97 million cubic feet
    per day, a 14 percent decrease from 2010, as Zargon continued to direct
    capital to oil exploitation programs while letting the natural gas
    production volumes decline naturally. Through the execution of our
    focused oil exploitation program, Zargon achieved an oil and liquids
    production weighting of 60 percent. Total 2011 production averaged 9,130
    barrels of oil equivalent per day, an eight percent decrease from the
    prior year. 
--  Funds flow from operating activities in 2011 of $60.67 million ($2.11
    per diluted share) were 17 percent lower than the $72.92 million ($2.77
    per diluted share) recorded in the prior year. The reduction in cash
    flow was primarily caused by decreased production volumes, increased
    realized derivative losses and increased production costs. 
--  Zargon declared cash dividends totalling $1.56 per common share during
    2011 for a total of $44.64 million ($38.14 million net of the DRIP).
    These cash dividends (net of the DRIP) were equivalent to a payout ratio
    of 63 percent of funds flow from operating activities. 
--  Net capital expenditures for the year totalled $48.65 million;
    consisting of $71.66 million of exploitation and development programs,
    $23.37 million of net property dispositions and $0.36 million of
    administrative assets. During the year, Zargon drilled 35.3 net wells
    yielding 32.8 net oil wells and 2.5 net abandonments. 
--  Zargon's December 31, 2011 debt, net of working capital (excluding
    unrealized derivative assets/liabilities and deferred taxes), of $109.50
    million, was approximately 1.8 times 2011 funds flow from operating
    activities, and was down 12 percent from the 2010 year end net debt of
    $124.39 million. At December 31, 2011, Zargon had approximately $70.50
    million of available credit facilities from its $180 million borrowing
    base. 



2012 Outlook

Details regarding Zargon's 2011 capital program and 2012 capital budget have
been provided in a news release dated February 15, 2012. Including the Little
Bow Alkaline Surfactant Polymer ("ASP") project, Zargon's 2012 capital budget
has been reset at $66 million and comprises of $21 million of ASP-related
expenditures and a net $45 million of field capital expenditures. Consistent
with the last two years, the 2012 capital programs will be directed entirely to
oil exploitation activities. In Alberta, the 2012 field capital program will
focus on Hamilton Lake Viking oil exploitation, Bellshill Lake increased fluid
withdrawals, Killam Glauconite oil pool development, Taber South waterflood
expansion and the Little Bow ASP project development. In the Williston Basin,
the capital program will focus on Midale horizontal drainage locations,
Frobisher undrained targets and early derisking expenditures for waterflooding
tight oil carbonates with multifrac horizontal wells.


In 2012, Zargon is projecting to spend $21 million of Phase 1 Little Bow ASP
capital with 75 percent of the expenditures occurring in the second half of the
year. This tertiary oil recovery project entails the injection of chemicals in a
water solution into a partially depleted reservoir to recover incremental oil
reserves. The project schedule anticipates first chemical injections in July,
2013, with a significant oil production response forecast to occur by January,
2014. Further information regarding this long-life oil exploitation project may
be found in the February 15, 2012 press release on www.zargon.ca or on
www.sedar.com.


With this capital budget, Zargon's 2012 oil and liquids production guidance is
set at 5,400 barrels per day, a production level that is expected to remain
relatively consistent throughout the year. Reflecting the combined impacts of
essentially no natural gas related capital expenditures and temporary property
shut-ins pertaining to very low natural gas prices, Zargon's 2012 natural gas
production guidance is set at 18.60 million cubic feet per day.


Finally, in recent years, the company's business has been challenged by rapidly
increasing operating costs as the company integrated the properties from five
corporate and one large oil property acquisition. Now, with a focused business
plan targeting eight clearly defined long-life oil exploitation initiatives we
will work to high-grade our property footprint and concentrate on operating,
capital and general and administrative cost containment initiatives. This
initiative may include the sale of non-strategic assets if attractive valuations
can be realized. Also, during this period of low natural gas prices, the company
will complete a comprehensive review of its natural gas properties to identify
well shut-ins, facility consolidation and other fixed cost saving opportunities
that will permit improved returns when natural gas prices improve.




                                                         Three Months Ended 
                                                               December 31, 
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                                               2011        2010     Percent 
                                         (unaudited) (unaudited)     Change 
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Financial Highlights                                                        
Income and Investments ($ millions)                                         
 Petroleum and natural gas sales, before                                    
  royalties                                   51.13       42.64          20 
 Funds flow from operating activities         17.10       14.40          19 
 Cash flows from operating activities         22.97        8.34         175 
 Cash dividends (net of Dividend                                            
  Reinvestment Plan)                           7.27       10.99         (34)
 Net earnings/(losses)                       (23.87)     (36.29)         34 
                                                                            
 Field capital and administrative asset                                     
  expenditures                                23.80       18.34          30 
 Net property and corporate acquisitions                                    
  (dispositions)                               1.08        1.75         (38)
 Net capital expenditures                     24.88       20.09          24 
                                                                            
Per Share, Diluted                                                          
 Funds flow from operating activities                                       
  ($/share)                                    0.58        0.54           7 
 Cash flows from operating activities                                       
  ($/share)                                    0.78        0.31         152 
 Net earnings/(losses) ($/share)              (0.81)      (1.35)         40 
                                                                            
Cash Dividends ($/common share)                0.30        0.54         (44)
                                                                            
Balance Sheet at Period End ($ millions)                                    
 Property and equipment (D&P)                                               
 Exploration and evaluation assets (E&E)                                    
 Total assets                                                               
 Working capital deficiency                                                 
 Bank debt                                                                  
 Shareholders' equity                                                       
                                                                            
Weighted Average Shares Outstanding for                                     
 the Period (millions) - Basic                29.28       23.85          23 
Weighted Average Shares Outstanding for                                     
 the Period (millions) - Diluted              29.32       26.89           9 
Total Common Shares Outstanding at                                          
 Period End (millions)                                                      
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                                                                 Year Ended 
                                                               December 31, 
----------------------------------------------------------------------------
                                                                    Percent 
                                               2011        2010      Change 
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Financial Highlights                                                        
Income and Investments ($ millions)                                         
 Petroleum and natural gas sales, before                                    
  royalties                                  191.53      179.47           7 
 Funds flow from operating activities         60.67       72.92         (17)
 Cash flows from operating activities         73.26       61.67          19 
 Cash dividends (net of Dividend                                            
  Reinvestment Plan)                          38.14       47.35         (19)
 Net earnings/(losses)                        10.38      (12.88)        181 
                                                                            
 Field capital and administrative asset                                     
  expenditures                                72.02       58.26          24 
 Net property and corporate acquisitions                                    
  (dispositions)                             (23.37)      10.96        (313)
 Net capital expenditures                     48.65       69.22         (30)
                                                                            
Per Share, Diluted                                                          
 Funds flow from operating activities                                       
  ($/share)                                    2.11        2.77         (24)
 Cash flows from operating activities                                       
  ($/share)                                    2.55        2.34           9 
 Net earnings/(losses) ($/share)               0.36       (0.49)        173 
                                                                            
Cash Dividends ($/common share)                1.56        2.16         (28)
                                                                            
Balance Sheet at Period End ($ millions)                                    
 Property and equipment (D&P)                410.67      412.12           - 
 Exploration and evaluation assets (E&E)      25.18       27.71          (9)
 Total assets                                470.69      472.25           - 
 Working capital deficiency                   16.80        9.11          84 
 Bank debt                                    92.70      115.29         (20)
 Shareholders' equity                        223.81      207.70           8 
                                                                            
Weighted Average Shares Outstanding for                                     
 the Period (millions) - Basic                28.63       23.53          22 
Weighted Average Shares Outstanding for                                     
 the Period (millions) - Diluted              28.77       26.33           9 
Total Common Shares Outstanding at                                          
 Period End (millions)                        29.36       27.05           9 
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Notes:

For the convenience of the reader, the comparative information presented in this
schedule refers to common shares and cash dividends although, for the
pre-corporate conversion period, these items were trust units and cash
distributions.


For net capital expenditures, amounts include capital expenditures acquired for
cash, equity issuances and net debt assumed on corporate acquisitions.


Funds flow from operating activities is a non-GAAP term that represents net
earnings/losses and asset retirement expenditures except for non-cash items.


Total shares outstanding for 2010 include trust units plus exchangeable shares
outstanding at period end. The exchangeable shares are converted at the exchange
ratio at the end of the period.




                                                         Three Months Ended 
                                                               December 31, 
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                                               2011        2010     Percent 
                                         (unaudited) (unaudited)     Change 
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Operating Highlights                                                        
Average Daily Production                                                    
 Oil and liquids (bbl/d)                      5,619       5,437           3 
 Natural gas (mmcf/d)                         21.96       23.28          (6)
 Equivalent (boe/d)                           9,278       9,317           - 
 Equivalent per million common shares                                       
  (boe/d)                                       316         346          (9)
 Oil and liquids per million common                                         
  shares (bbl/d)                                192         202          (5)
                                                                            
Average Selling Price (before the impact                                    
 of financial risk                                                          
 management contracts)                                                      
 Oil and liquids ($/bbl)                      87.11       70.49          24 
 Natural gas ($/mcf)                           3.02        3.44         (12)
                                                                            
Netback ($/boe)                                                             
 Petroleum and natural gas sales              59.91       49.74          20 
 Royalties                                    (9.66)      (8.55)        (13)
 Realized gain/(loss) on derivatives          (2.74)      (2.26)        (21)
 Production and operating expenses           (17.82)     (13.14)        (36)
 Transportation expenses                      (0.50)      (0.33)        (52)
 Operating netback                            29.19       25.46          15 
                                                                            
Wells Drilled, Net                             11.5        13.8         (17)
                                                                            
Undeveloped Land at Period End (thousand                                    
 net acres)                                                                 
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                                                                 Year Ended 
                                                               December 31, 
----------------------------------------------------------------------------
                                                                    Percent 
                                               2011        2010      Change 
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Operating Highlights                                                        
Average Daily Production                                                    
 Oil and liquids (bbl/d)                      5,468       5,645          (3)
 Natural gas (mmcf/d)                         21.97       25.40         (14)
 Equivalent (boe/d)                           9,130       9,879          (8)
 Equivalent per million common shares                                       
  (boe/d)                                       317         373         (15)
 Oil and liquids per million common                                         
  shares (bbl/d)                                190         213         (11)
                                                                            
Average Selling Price (before the impact                                    
 of financial risk                                                          
 management contracts)                                                      
 Oil and liquids ($/bbl)                      82.09       69.69          18 
 Natural gas ($/mcf)                           3.45        3.87         (11)
                                                                            
Netback ($/boe)                                                             
 Petroleum and natural gas sales              57.47       49.77          15 
 Royalties                                   (10.19)      (8.86)        (15)
 Realized gain/(loss) on derivatives          (3.55)       0.13      (2,831)
 Production and operating expenses           (16.68)     (12.77)        (31)
 Transportation expenses                      (0.51)      (0.32)        (59)
 Operating netback                            26.54       27.95          (5)
                                                                            
Wells Drilled, Net                             35.3        37.6          (6)
                                                                            
Undeveloped Land at Period End (thousand                                    
 net acres)                                     422         521         (19)
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Notes:

The calculation of barrels of oil equivalent ("boe") is based on the conversion
ratio that six thousand cubic feet of natural gas is equivalent to one barrel of
oil. Average 2010 daily production per million common shares is calculated using
the weighted average number of units outstanding during the period plus the
weighted average number of exchangeable shares outstanding for the period
converted at the average exchange ratio for the period.


Forward-Looking Statements

This press release offers our assessment of Zargon's future plans and operations
as at March 8, 2012, and contains certain forward-looking information and
statements within the meaning of applicable securities laws. The use of any of
the words "anticipate", "continue", "estimate", "expect", "forecast", "may",
"will", "project", "should", "plan", "intend", "believe" and similar expressions
(including the negatives thereof) are intended to identify forward- looking
information or statements. In particular, but without limiting the foregoing,
this news release contains forward-looking information and statements pertaining
to the following: guidance as to our 2012 capital budget, (including ASP),
forecasts and estimates as to drilling operations, production volumes and
production and operating expenses under the heading "2012 Outlook".


The forward-looking information and statements included in this news release are
not guarantees of future performance and should not be unduly relied upon. Such
information and statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking information or statements including,
without limitation: those relating to results of operations and financial
condition; general economic conditions; industry conditions; changes in
regulatory and taxation regimes; volatility of commodity prices; escalation of
operating and capital costs; currency fluctuations; the availability of
services; imprecision of reserve estimates; geological, technical, drilling and
processing problems; environmental risks; weather; the lack of availability of
qualified personnel or management; stock market volatility; the ability to
access sufficient capital from internal and external sources; and competition
from other industry participants for, among other things, capital, services,
acquisitions of reserves, undeveloped lands and skilled personnel. Risks are
described in more detail in our Annual Information Form, which is available on
www.zargon.ca and on www.sedar.com. Forward-looking statements are provided to
allow investors to have a greater understanding of our business.


You are cautioned that the assumptions used in the preparation of such
information and statements, including, among other things: future oil and
natural gas prices; future capital expenditure levels; future production levels;
future exchange rates; the cost of developing and expanding our assets; our
ability to obtain equipment in a timely manner to carry out development
activities; our ability to market our oil and natural gas successfully to
current and new customers; the impact of increasing competition; the
availability of adequate and acceptable debt and equity financing and funds from
operations to fund our planned expenditures; and our ability to add production
and reserves through our development and acquisition activities, although
considered reasonable at the time of preparation, may prove to be imprecise and,
as such, undue reliance should not be placed on forward-looking statements. Our
actual results, performance, or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements. We can give no
assurance that any of the events anticipated will transpire or occur, or if any
of them do, what benefits we will derive from them. The forward-looking
information and statements contained in this document is expressly qualified by
this cautionary statement. Our policy for updating forward-looking statements is
that Zargon disclaims, except as required by law, any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.


Non-GAAP Financial Measures

Zargon uses the following terms for measurement within this press release that
do not have a standardized prescribed meaning under Canadian generally accepted
accounting principles ("GAAP") and these measurements may not be comparable with
the calculation of similar measurements of other entities.


The terms "funds flow from operating activities", "funds flow from operating
activities per shares" and "operating netback per boe" in this press release are
not recognized measures under GAAP. Management of Zargon believes that in
addition to net earnings and cash flows from operating activities as defined by
GAAP, these terms are useful supplemental measures to evaluate operating
performance and assess leverage. Users are cautioned; however, that these
measures should not be construed as an alternative to net earnings or cash flows
from operating activities determined in accordance with GAAP as an indication of
Zargon's performance.


Zargon considers funds flow from operating activities to be an important measure
of Zargon's ability to generate the funds necessary to finance capital
expenditures, pay dividends and repay debt. All references to funds flow from
operating activities throughout this press release are based on cash provided by
operating activities before the change in non-cash working capital since Zargon
believes the timing of collection, payment or incurrence of these items involves
a high degree of discretion and, as such, may not be useful for evaluating
Zargon's operating performance. Zargon's method of calculating funds flow from
operating activities may differ from that of other companies and, accordingly,
may not be comparable to measures used by other companies. Funds flow from
operating activities per diluted share is calculated using the same weighted
average diluted shares outstanding as is used in calculating earnings per
diluted share. See Zargon's Management's Discussion and Analysis ("MD&A") as
filed on www.zargon.ca and on www.sedar.com for the years ended December 31,
2011 and 2010 for a reconciliation of cash flows from operating activities to
funds flow from operating activities.


51-101 Advisory

In conformity with National Instrument 51-101, Standards for Disclosure of Oil
and Gas Activities ("NI 51-101"), natural gas volumes have been converted to
barrels of oil equivalent ("boe") using a conversion rate of six thousand cubic
feet of natural gas to one barrel of oil. This ratio is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Readers are cautioned that
the term "boe" may be misleading, particularly if used in isolation.


Filings

Zargon has filed with Canadian securities regulatory authorities its financial
statements for the year ended December 31, 2011 and the accompanying MD&A. These
filings are available on www.zargon.ca and under Zargon's SEDAR profile on
www.sedar.com.


About Zargon

Based in Calgary, Alberta, Zargon's securities trade on the Toronto Stock
Exchange and there are currently approximately 29.395 million common shares
outstanding.


Zargon Oil & Gas Ltd. is a Calgary based oil and natural gas company working in
the Western Canadian and Williston sedimentary basins that has delivered a long
history of returns, dividends (distributions) and value creation. Zargon's
business is focused on oil exploitation projects where we employ a careful
reservoir engineering inspired technical approach to profitably increase oil
recovery factors from existing oil reservoirs.


In order to learn more about Zargon, we encourage you to visit Zargon's website
at www.zargon.ca where you will find a current shareholder presentation,
financial reports and historical news releases.