Zargon Oil & Gas Ltd ZARFF

Energy Oil & Gas E&P

Zargon Oil & Gas Ltd is a producer of oil and gas. It is engaged in the exploration, development, and production of oil and natural gas in Canada and the United States. The company works on three phases of oil reservoir exploitation which include Primary recovery, Waterflood recovery, and Tertiary recovery. Its portfolio includes Alberta plains north, Alberta plains south and Williston basin projects.

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Zargon Oil & Gas Ltd > Why voting YES for the debenture deal

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Comment by rad10on Nov 26, 2018 7:56am

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Post# 29020254

RE:Why voting YES for the debenture deal

stockfy wrote: It seems that some debenture holders ignore that Craig Hansen holds both debentures and common equity. And the CEO holds more than 1.5 million common shares, so he will not allow his common stock fortune to go to zero just because some short-sighted debenture holders want to get more from ZAR leaving nothing for the common equity holders. Yes we know this - and kudos to Craig for trying to do right by the shareholders. Preserving seniority of the debentures is critical and alternative lesser proposals that buy time for the company. They are less drastic for debenture holders and equally effective for the company.

The debenture holders will receive shares either they convert now at 10 cents or at 95% of the stock price in December 2019. Fact. No cash. If the offer is rejected the cash payment for the interest becomes due at the end of March - 4% of face value around 1.6 million dollars.

Another fact is that ZAR's current price of 5 cents is the result of these reasons:

1) Epic sell-off in WTI,

2) Epic widening in Canada's oil spreads and

3) Relentless tax loss selling because ZAR was an excellent tax loss candidate as it was much higher than 10 cents in the first nine months of 2018.

This trifecta of causes is of no consequence to debt holders. This is the hand that has been dealt.

In December 2019, all these reasons will not exist, so oil prices will be much higher than today. No tax loss selling, OPEC cuts production, Enbridge's Line 3, crude-by-rail shipments, U.S. refineries end maintenance this month and resume operations again, Alberta's Sturgeon refinery begins full capacity operations in December 2018 etc.

A confident and bold prediction by someone who thought the debentures could be refinanced and couldn't even see the proposal coming................

So Craig Hansen has tailwinds to make a deal in 2019 (i.e. sell North Dakota asset) and push ZAR's common stock significantly higher than 10 cents.

Perhaps Mr Hansen has been overoptimistic regarding the market value of Zargons assets over the last couple of years. Perhaps receivership is not the worst outcome.

As a result, the debenture holders will convert in December 2019 at a higher price than 10 cents, so they will receive MUCH LESS shares than now. How anyone can make that prediction is beyond me......... Must have a crystal ball - but wait - he is long ATH, CJ and ZAR................. Hardly wealth building positions..........

This is not rocket science. I'm surprised that a couple of debenture holders can see only one direction and erroneously think that ZAR's stock can go to 1 cent, so they can get almost 100% of ZAR in December 2019 when they convert and receive shares.

Perhaps they have a little more experience in this area. Relieving pressure on the company by accepting a PIK for the March and September interest payments is a valid and noble approach that is in the company's best interests. Relinquishing debenture seniority is stupid and self defeating.