Zargon Oil & Gas Ltd T.ZAR

RE:the future of Zargon and falling oil prices

[pablo87]

SP, having lost money myself, I cannot pretend to give you advice.  I found this letter by Andy Hall - a so called oil guru - useful in understanding the market situation.

 https://www.zerohedge.com/news/2017-07-08/when-facts-change-oils-biggest-cheerleader-capitulates-andy-halls-full-bearish-lette

There was also an interview recently with Harold Hamm a famous US oil man in which he is bullish on natural gas (of course Canada hasn't enough egress and no LNG export terminals) and more or less throws his hands up on predicting oil prices.

Zargon's conventional properties have $13MM of fcf at $55 wti; i'll guess $11MM at $50. Ignoring hedges, Little Bow ASP and tax losses, $55-65MM would seem to be a reasonable valuation or 50 cents to $1 a share (depending if you assume $35MM or $40MM debt).

The fear with Zargon is they run out of cash and instead of borrowing from bank, decide to issue shares - with a market cap of $15M, the dilution could be substantial.  There may be upside from their natural gas properties too though. 

Also, its not clear to me they are replenishing the reserves the 5-6x cash flow valuation is based on. I dont understand enough about this to figure it out but I do know same properties have less reserves than 3 years ago.

While there may not be (m)any buyers now, there were 2 mergers this past week - seems like industry is seeing the writing on the wall and getting their house in order.

It is a very very small company though.