Zargon Oil & Gas Ltd ZARFF

WCS yesterday $48.66

[hawkowl1]

From Presentation 
$50 WCS generates $16.5 million of field cash flow times 4.5 less net debt equal
attributed to Zargon shares. $1.12.

Worst is over for WCS with demand going up into spring and summer.

[Method]

Actually, $48.66 was Friday, yesterday we hit $49.22 and today with the move in WTI, we could be over $50.

[hawkowl1]

Even better. Someone from Nesbitt Burns ran out of patience and is liquidating 

[Method]

I own the debs instead of the equity. Seems like the risk reward is slightly better but obviously hope it works out for equity shareholders in a big way!

[rad10]

Same ! Small volume of debentures added to core recently - they are available in high 70s. Makes sense just to wait things out. How long before Zargon gets snapped up?

[alkhor]

I can't figure out why the debs aren't trading closer to 100. Worst case scenario is the company pays off the debs with equity, which means the deb holders will end up with the majority of a totally debt free company. They will get the full value of the debs then.

[rad10]

They are very illiquid - i only Pick up a few at a time. Slowly building a position.

[Method]

Especially with WCS trading above $55 now. At 80 you are creating the debs at less than 2x field cash flow based on management guidance in the latest presentation. https://www.psac.ca/business/GMPFirstEnergy/

[pablo87]

Why the debbies are trading at less than 80 cents. 1st, given current oil asset market conditions, there is almost no chance the debbies would get converted for $1.25.  So there's no upside there. 2nd, interest rates going up, Zar.db is fixed so the yield should be going up and prices down. And tbh, Zar.db hasn't gone down as much as pipelines. Don't see the share conversion

[Method]

1. If they decide to sell the company, they should be able to get 4.5x field cash flow. That's below the average multiple of other oily companies so even a stock for stock deal would work. Based on the current WCS at C$55 which would result in C$1.41 for the shares or a debenture around $112. 2. Interest rates going up don't matter much when the YTM is north of 20%. These are not trading

[pablo87]

Method, I don't think your valuation is realistic. Little Bow is unconventional and high cost, not worth much unless WCS stays higher ($60) longer (18 months).  Canadian conventional we can compare to Altura, its not going to be worth anywhere near the NAV.  North Dakota is valuable.  I'm thinking 80 cents to $1 per share which leaves the debentures out of the money. I

[Method]

Why own the equity or debs if that is your view?

[pablo87]

Is the share price still 36 cents this am?

[Method]

Yes but if they have to convert the debs to equity it will go to 5 cents.

[pablo87]

If so, my average cost would then be 6.3 cents - not so bad.

[Method]

Is that because you own a lot more debentures than equity?  

[pablo87]

Yes.  I used to think there was conversion upside but based on stagnant share prices (and low transaction prices for this type of asset) across the industry despite WTI's (and WCS more recently) rebound, it seems this is no longer realistic especially that Little Bow is so high cost and unconventional.

[Method]

I just think it isn’t logical to own things where if your current view is correct, you lose money. WCS ticked above C$59 yesterday, btw. 

[pablo87]

Method, @ $1 a share my strategy returns 96% from today's price while protecting me from any worst case scenario. I'm happy with it. GLTA.

[Method]

I was just confused how the bonds won't be redeemed or be exchanged for stock and the stock will be at $1. Hope you are right about the stock. Good luck.

[pablo87]

Method, if they want to lower the conversion price so that the debentures are in the money, I've no problem with that but I think debentureholders would not convert for anything other than cash so the question becomes, why would they do that then?  They'd be giving away money to debentureholders at the expense of shareholders for no benefit at all... I only see such a scenario if

[Method]

If there is a change of control (merger) they have to offer the debenture holders cash so keep that in mind in your scenario analysis.

[pablo87]

I was spitballing that if they didn't have the cash, a buyer might offer $1 to s/h and 0.75 conversion right to Debbie's.

[Method]

It would have to be a dollar in stock and in that scenario if the stock held, the debs would trade up to $133. The debs would have to give approval in that scenario which would add risk to the arrangement.  You have any examples of a deal like that? I haven't seen anything like that as its not very efficient to pay the debs more than par.

[pablo87]

Method, I don't have any examples. 

[hawkowl1]

A lot can happen between now and December 31st ,2019 regarding conversion of debentures. 21 months away.There is talk of $80 oil this year.  Not sure where you get your numbers of .5cents per share? With rising oil prices Zargon common will not stay at .39 cents .  Not saying it will go to $1.25 but it will be much higher than todays closing price. Zargon to start with has a very

[Cardboard1]

I agree. The oil price is a huge factor on this one. The debentures are certainly attractive here at 75 cents on the dollar and I have been buying. It is a very high yield to maturity on what appears very well supported by asset values. For example, if you assume $0 for the stock and with the debentures at this price, we are talking of an EV of $29.1 million. That is $11,500 per boe/d and 37% of

[RollinInDough]

according to pablo.... there was no chance the debs would be converted at $1.25.... my gawd, that was only a year ago and those debs went for 3 pennies... surprise, surprise, surprise gommer pyle... whahhhaahhhh add pablo to my growing list of big thinkers here... yes $1.25 was never going to happen.... as he opined a year ago.... and they go for only 3 pennies!  man were you a simple minded

[pablo87]

The genius who said we'd all go empty handed on our TBE debentures instead of the 7 bagger it became...

[rad10]

Pablo -  Twin buttcheeks was one of my best ever trades.  I don't buy common shares in small / midcap canadian o and g because there are too many of these characters............  The companies tend to be run purely to generate salaries and the reporting is often the stuff of fantasy. Look at the legal costs Zargon have incurred - talk about an internal money go round...........

[RollinInDough]

really?  these two losers that owned TBE that went under and zar that dropped over 99% and other lousy stocks... these two calim a multi bagger on debs... they now say they owned tbe debs... that is unbacked debts of a financially deeply troubled company... they owned that debt... that only paid out because of a legal decision, that has since been reversed... they owned that debt... the