Zargon Oil & Gas Ltd ZARFF

Canadian asset valuation and Go Private?

[pablo87]

As explained in a prior post, North Dakota is worth close to 7 cents a share. What is the Canadian assets worth? that's hard to say. There are good reserves at Little Bow but its higher cost. The conventional has weaker reserves and has the abandoned well liabilities (though as pointed out, there are a number of E&Ps in similar boat - Surge was one example, another is Obsidian and its my strong belief that the govt will do something about this sooner or later esp. because of the Supreme court ruling that prioritized environmental over bank debt - the banks are on their side now and what Canadian banks wants in Canada, Canadian banks get).

Be that as it may, it is generating very good cashflow at these prices). So what should the Canadian plan be? Well, IMO it should be to reinvest cashflow into either drilling or acquiring properties to increase cashflow and thus lower the overall operating + capex break-even costs (from the current C$54 net of royalties). This would make the company more resilient for the next price crisis.

The other variable is the high SG&A. This needs to be cut big time (in Canada, there are many accounting firms that will charge less than half what an E&Y would for example) though its doubtful that current managemnt can execute on this.

That being said, it seems to be a very good go private candidate. If it stays at 3-3.5 cents for long enough (that's clearly part of that clown posters' job - same assignment as at TBE though that didn't work out so well...), investors will become numb and be more than happy to accept 6-7 cents. Which would mean the go privateers paid full price for North Dakota (an asset that can support it with its low cost, steady cashflow and long life reserves) and got the Canadian assets (and the $200M non capital tax loss) for free. Plus, SG&A would go way down in this scenario.

YMMV, GLTA.

PS - if WCS goes below C$50, stick a fork in it.