Zargon Oil & Gas Ltd ZARFF

Post Mortem

[pablo87]

Lost big on this one in late 2018/19.  90% of the loss came when they converted the debentures (which Bay Street and other brokers like Peters & Co. foolishly voted yes to the share conversion proposal - if they didn't vote yes, the company would have been forced in Receivership and while we would have probably suffered a loss, it would have been much less in my opinion).   What went wrong?  3 part answer.

First, the industry has gone thru a terrible past 5 years.  Alberta has a 10 year chart of WCS - if you're invested in oil and gas, it should be top of mind.  It seldom dips below $50 from 2011 to 2015 Q3. Average is like ~$65?  Whereas the past 5 years, the average is closer to $40? with 3 different price shocks where WCS fell below $20 in one case and below $10 in 2 other cases.  As a result, if you stayed put in your oil and gas E&P investments during this time, you're looking at a loss of 50% at least. More like 75-80% for small cap.

2nd, I invested ~20% in small caps during this time. Should have lost it all. Fortunately, made a killing on Twin butte debentures.  Unfortunately, that emboldened me to invest in Zargon debentures hoping history would repeat itself.  It didnt.  Would I invest again in this type of stock again? Yes but probably not in oil and gas - see answer #1.

3rd, Zargon itself. They made a lot of bad decisions. The investment in Little bow asp - $100M?Then they sold the SE Sask asset fo $89M, they had $25M in cash.  I thought they would invest in the US asset and keep the cash by either extending the debentures or letting them convert. Instead they bought back some debentures.  They also carried on with Little Bow ASP which needed to be shut down.  They also proposed to convert the debentures when all hope was essentially lost.  Finally, they were forced to sell the US asset for a song - this was an asset that was 25-30% of the asset sold a few years prior for $89M.  But again, go back to point #1.  If WCS is remotely stable and above $50, the company is still around.

Thing is, the signs were there. The VP ops continuously sold his shares like clockwork. Canadian banks refused to give them any credit.  Myself, I didnt understand this abandoned well liability issue.  Presentation was basically silent on this matter, that's on them.  

As far as other oil and gas, there's more consolidation and bankruptcies to come. Clearly. Im in KEL now because of the small producers, its the strongest financially with the best lands IMO and the share price is low. Learned my lesson.

[rad10]

yep - the abandonment liabilities were just too much.  Good post Pablo. The cyber troll has several bad calls including gear energy and others.  When you use so many user names you can hide your tracks.  Zargon Debentures - we should have forced recapitalisation rather than taking that sh!tty offer. Take the write off and learn to stay away from smallcap Canadian O&G

[pablo87]

Rad, 2 things I don't understand the scope of the abandonment liabilities and why in G's green earth would investors vote yes to converting the debentures. At that time we knew ZAR couldn't afford the debentures (which interest could have been waived) but we also knew the market would recover and it would be the best time to sell the assets like what happened with TBE instead of

[Wildcattter]

This post has been removed in accordance with Community Policy

[alkhor]

Just curious if everyone still has their Zargon shares in their accounts. At the final death throughs of the company they decided all shares would be converted to redeemable shares on a one to one basis and the shares would be redeemed for zero value. They did this with Eagle Energy and all the shares of Eagle disappeared shortly after. To me this practice should be illegal and when I complained