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CALGARY, ALBERTA–(Marketwire – Sept. 12, 2011) – Zargon Oil and Gas Ltd. (TSX:ZAR) (“Zargon”) provides the following operational update and announces a reduced fourth quarter 2011 monthly dividend of $0.10 per common share to ensure continued financial flexibility, execution of our promising oil exploitation programs and to provide for the development of the Little Bow tertiary oil recovery project.

PROPERTY DISPOSITIONS AND ACQUISITIONS

Consistent with Zargon’s strategy to maximize returns from non-core properties, on July 7, 2011, Zargon completed the previously announced disposition of the Antler and Manor, Williston Basin properties for a cash consideration, after adjustments, of $23.87 million. In aggregate, these two southeast Saskatchewan properties were producing 260 barrels of oil per day, and had included 7,800 net acres of undeveloped land. On September 6, 2011, Zargon also completed the sale of 3,200 net acres of undeveloped land in the Whitecourt area of Alberta, for a cash consideration of $5.00 million. There was no production associated with the Whitecourt lands.

On August 23, 2011, Zargon completed the acquisition of a partner interest in the Alberta Plains North Jarrow property for a cash consideration, after adjustments, of $6.25 million. The acquisition brought approximately 1.30 million cubic feet per day of natural gas production. Most importantly, this transaction increased Zargon’s interest to 100 percent in two Jarrow Units and the related compression and gathering facilities, which is consistent with Zargon’s strategy to consolidate interests in core properties.

HAMILTON LAKE VIKING OIL EXPLOITATION

Zargon drilled its first multi-frac horizontal well at the Hamilton Lake, Alberta property in March. Due to wet weather and related surface access problems, continuous pumped off operating conditions for this 16-16-36-10 W4 well were delayed until late summer. The available production data (on an operating day basis) is summarized below:

Recent trends suggest that the well may stabilize around 50 barrels of oil per day (33 degree API) with a 10 percent oil cut. The well is also producing approximately 180 thousand cubic feet per day of solution gas (sales), which brings the anticipated stabilized production rate up to 80 barrels of oil equivalent per day. Our technical view is that although total fluid production will decline, the oil cuts should improve thereby providing relatively stable oil rates.

Based on a stabilized estimate of 80 barrels of oil equivalent per day, we are encouraged that the redevelopment of this pool will deliver strong returns. Considering that this wholly owned 47 section Unit has recovered by waterflood only an estimated 10 percent of the oil-in place, the property brings considerable upside. Later this year, Zargon plans to drill two additional multi-frac horizontal wells at the western and eastern end of the Hamilton Lake property. The two additional multi-frac horizontal wells planned for the first quarter of 2012 are designed to replicate the 16-16 well production results. With further de-risking, the Hamilton Lake property could be a significant oil resource opportunity that will take as many as 30 horizontal multi-frac drainage wells to optimally waterflood and exploit. Zargon’s 2010 year end independent reserve appraisal does not recognize any of these potential undeveloped locations.

KILLAM GLAUCONITE OIL EXPLOITATION

Since spring break-up, Zargon has drilled three horizontal wells for Glauconite oil production at the Killam property. The wells are part of an early stage project delineation program on a four section Zargon land block which we interpret to be part of a continuous 27 degree API Glauconite oil accumulation. Initial production data indicates average initial production rates of approximately 40 barrels of oil per day, which corresponds to primary recoveries of 50 thousand barrels per well. Zargon’s reservoir studies suggest that significant incremental reserves can be recovered through the implementation of a single leg parallel producer-injector waterflood. With further de-risking, the Killam property is expected to be a significant oil exploitation project that could take as many as 20 horizontal drainage wells to optimally waterflood and exploit. Zargon’s 2010 year end independent reserve appraisal does not recognize any of these remaining potential undeveloped locations.

TABER SOUTH SUNBURST OIL EXPLOITATION

In the 2011 third quarter, Zargon drilled three horizontal wells at Taber South for Sunburst oil production. The main Zargon Taber South Sunburst pool has an average of seven metres of oil (18 degree API) pay overlying an inactive water aquifer and has an areal extent of about 1,400 acres. Zargon has drilled 20 horizontal delineation and drainage wells in this reservoir, with another ten remaining locations. With little reservoir pressure support due to low residual solution gas volumes and an inactive underlying aquifer, this Sunburst reservoir is a good candidate for secondary recovery by waterflood. Last winter, Zargon implemented the first phase of the waterflood in the southern one-third of the pool by converting three horizontal producers into injectors. Initial results show stabilized rates at the offsetting producers despite some initial water quality and injectivity challenges that are now being resolved. We anticipate having approvals to make the next round of injector conversions in place by next spring. Zargon’s 2010 year end independent reserve appraisal does not recognize waterflood reserves for either the first or subsequent phases of this waterflood project.

WILLISTON BASIN OIL EXPLOITATION

In the Williston Basin core area, this spring and summer’s wet conditions and flooded surface leases have resulted in a three-month delay and drilling operations did not resume until the middle of August. Consequently, to date, only two horizontal wells at the Weyburn and Elswick properties have been drilled in the third quarter. The Williston Basin provides Zargon with a rich inventory of oil exploitation projects that provide robust returns at current prices. For the western Williston Basin properties at Steelman, Elswick, and Weyburn, the exploitation locations are either poorly drained Frobisher structures or are lower rate Midale waterflood acceleration drainage wells. The majority of Zargon’s 2010 drilling program targeted very profitable Steelman Frobisher locations that were characterized by very strong initial rates which are associated with rapid declines prior to rate stabilization. Over the next year, the majority of Zargon’s Williston Basin oil exploitation locations will target lower initial rate, but shallower decline Midale drainage wells.

Zargon’s eastern Williston Basin properties at Daly, Virden, Mackobee Coulee, Truro, Frys and Workman are characterized by thick, low permeability Mississippian oil-bearing carbonate formations that are interpreted to be prospective for improved waterflood performance through the use of multi-frac horizontal drainage wells. This winter, as a follow up to a successful Truro multi-frac horizontal well, Zargon is planning four horizontal multi-stage frac locations at Truro and Mackobee Coulee in North Dakota and Daly, Manitoba. Beyond 2012, it is anticipated that the majority of the Williston Basin locations will be multi-stage frac waterflood exploitation wells in the eastern properties. In aggregate, Zargon currently holds an 85 net well Williston Basin oil exploitation inventory that will provide profitable drilling opportunities for the foreseeable future. Zargon’s 2010 year end independent reserve appraisal recognizes only five of the undeveloped locations from this current inventory.

LITTLE BOW ASP TERTIARY OIL RECOVERY PROJECT

Since 2009, Zargon has been acquiring through both corporate and property acquisitions, a significant interest in mostly depleted Glauconite waterfloods in the Little Bow area of Southern Alberta in order to implement tertiary oil recovery projects by chemical injections. Specifically, we are proposing to implement an Alkaline Surfactant Polymer (“ASP”) tertiary flood which entails injecting chemicals in a water solution into the reservoir to recover incremental oil reserves. Our first project will be at the wholly owned Little Bow Upper Mannville I pool, where laboratory studies and computer modeling suggest that an ASP flood has the potential to increase recovery factors by 10 percent of the original oil-in-place. In the second half of 2011, Zargon is proceeding with final laboratory studies, a front-end engineering and design “FEED” study and preliminary detailed engineering with the expectation that the Little Bow ASP project will be presented to Zargon’s Board of Director’s for sanctioning approval in December 2011. The total capital cost of phases 1 and 2 of the ASP project is approximately $37 million (constant 2011 dollars), of which $1.5 million will be spent in 2011; $25 million is forecast to be spent in 2012 and the remainder of the capital is forecast to be spent in 2013. The current project schedule anticipates first chemical injections in July 2013 with a significant oil production response forecast by January 2014. The estimated cost of the injected chemicals during the 2013-2017 injection period is $60 million. Reservoir studies for phases 1 and 2 indicate that an incremental 4.0 million barrels of oil reserves (21 degree API) can be recovered, with peak oil production rates forecast in 2017. Additional oil recoveries and improved economics are projected if phases 3 and 4 are sanctioned in 2014 for 2015-2019 injections. Zargon’s 2010 year end independent reserve appraisal does not recognize any ASP tertiary recovery potential.

CAPITAL PROGRAM AND BUDGET UPDATE

In the first half of 2011, Zargon’s drilling program was limited due to flooded surface leases to a total of 11 gross (9.6 net) oil wells. The third quarter program is now fully underway with seven horizontal oil exploitation wells drilled at Killam (two), Taber South (three) and in the Williston Basin (two). In addition to these seven locations, Zargon plans to drill the following 32 oil exploitation locations prior to 2012 spring break-up:

2011 H2 and 2012 Q1 OPERATED DRILLING PROGRAM

In addition to the proposed Hamilton Lake, Killam, Taber South and Williston Basin locations previously discussed, the upcoming drilling program includes 10 oil exploitation locations at Bellshill Lake, Grand Forks, Highvale and Carrot Creek properties. Each of these Alberta Plains locations are targeting improved oil recoveries identified by reservoir studies of existing oil pools.

In aggregate, the Alberta Plains core areas provide an 80 net well inventory of oil exploitation locations. This well inventory combined with the 85 net well Williston Basin inventory provides Zargon with a robust opportunity base of oil exploitation locations that will form the foundation of our field capital program for the foreseeable future. The Zargon 2010 year end independent reserve appraisal recognizes less than 10 percent of these 165 net oil exploitation locations. Based on the 2010 year end report prepared by McDaniel & Associates Consultants Ltd., Zargon’s calculated net asset value using proved and probable reserves was $18.15 per common share (present value before tax at 10 percent discount rate, adjusted for net debt and an undeveloped land appraisal).

Further to the July 19, 2011 press release, Zargon’s 2011 field capital budget continues to be set at $65 million. With approximately $25 million of net property dispositions already concluded, the 2011 net capital program will be approximately $40 million, provided that no further acquisitions or dispositions are completed this year. On a preliminary basis, Zargon’s 2012 field capital budget is set at $65 million, which is expected to be offset by $10 million of net property dispositions to result in a net capital expenditure of $55 million. An additional $25 million of capital will be spent in 2012 if the Little Bow ASP project is sanctioned this December.

BALANCE SHEET STRENGTH AND COMMODITY HEDGES

Further to this summer’s property dispositions, Zargon’s debt, net of working capital, is approximately $85 million and represents less than 50 percent of Zargon’s recently renewed $180 million syndicated loan facility. Furthermore, Zargon has entered into the following forward oil sale contracts as a risk management tool to assist in the funding of dividends and capital programs in the event of significant oil commodity price declines:

GUIDANCE

On July 19, 2011, Zargon provided 2011 quarterly oil production guidance of 5,200 to 5,400 barrels of oil per day for the third and fourth quarters of 2011, with a 2011 exit rate guidance of 5,600 barrels of oil per day. These oil production guidance estimates are reaffirmed. In the same press release, Zargon provided 2011 quarterly natural gas production guidance of 21.0 and 20.2 million cubic feet per day in the third and fourth quarters, respectively. With the August Jarrow property acquisition, the third and fourth quarter natural gas production guidance estimates are increased to 22.0 and 21.6 million cubic feet per day, respectively.

CHANGE IN FOURTH QUARTER 2011 DIVIDEND POLICY

Since July 2011, world oil prices have declined significantly from the levels received in the first half of this year. Despite this reduction in price, Zargon has a large and varied inventory of oil exploitation projects that are economic to pursue at significantly lower oil prices. In the context of the lower prices and a promising oil exploitation capital program, Zargon Oil & Gas Ltd.’s Board of Directors has reviewed Zargon’s dividend policy and commencing in October 2011 has reduced the monthly dividend rate from $0.14 per common share to $0.10 per common share per month. The cash dividend for the month of September will remain unchanged at $0.14 per common share.

Zargon’s dividend policy is reviewed monthly, and will continue to be based on a number of factors including current and future commodity prices, foreign exchange rates, commodity hedging programs, current operations, financial and legal requirements, capital programs and commitments and other conditions existing at such future times. Zargon will continue to carefully monitor the impact of all these issues and adjust its monthly dividend as conditions dictate.

The particulars regarding Zargon’s September cash dividend of $0.14 per common share and 2011 fourth quarter cash dividend to shareholders of $0.10 per common share per month are presented below:

(*) The above reflects an anticipated dividend based on Zargon’s current projected commodity prices, commodity hedge positions and production volumes. Dividends are subject to change should there be a material change in expected cash flow for the respective periods.

Unless otherwise indicated, all dividends paid by Zargon are “eligible dividends” for Canadian tax purposes.

FORWARD-LOOKING STATEMENTS

This press release offers our assessment of Zargon’s future plans and operations as at September 12, 2011, and contains forward-looking statements. All statements other than statements of historical fact may be forward-looking statements. Such statements are generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “should”, “plan”, “intend”, “believe” and similar expressions (including the negatives thereof). In particular, this press release contains forward-looking statements pertaining to the following:

• our business plans and strategy;
• oil and natural gas production levels;
• the performance characteristics of our oil and natural gas properties;
• anticipated reserve additions;
• oil and natural gas production levels;
• drilling, completion and workover inventories and activities and the results therefrom;
• waterflood, ASP and other recovery and development plans and the results therefrom;
• anticipated drilling and other capital costs and expenditures;
• the amount of, timing and allocation of our capital expenditure program;
• anticipated property dispositions;
• projections of market prices and costs and the related sensitivities of dividends;
• supply and demand for oil and natural gas;
• risk management strategy;
• our dividend policy and payment of dividends;
• the sources of funding of our capital expenditures and dividends.

By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond our control, including such as 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. This press release also contains test results for various wells. Actual production from these wells could differ materially from these test results. Risks are described in more detail in our Annual Information Form, which is available on our website and at 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, 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, our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and acquisition activities used in the preparation of such information, 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 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.

Boe and Other Advisories

The term “boe” or barrels of oil equivalent may be misleading, particularly if used in isolation. A Boe conversion ratio of six thousand cubic feet per barrel (6 Mcf: 1 Bbl) of natural gas to barrels of oil equivalence 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 estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation.

FURTHER INFORMATION

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 size provides a unique opportunity to pursue smaller but very profitable 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.

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