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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Promising drilling prospects add appeal

August 19, 2011 -  Be the first to comment
Posted by: Pat McKeough Filed in: Commodity Investments
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DELPHI ENERGY $2.18 (Toronto symbol DEE; TSI Network Rating: Speculative) (403-265-6171; www.delphienergy.ca; Shares outstanding: 119.7 million; Market cap: $250.3 million; No dividends paid) explores for oil and natural gas in Alberta, Saskatchewan and B.C. Gas makes up 70% of Delphi’s daily output; the remaining 30% is oil.

In the three months ended June 30, 2011, Delphi’s average daily output rose 10.8%, to a record 8,906 barrels of oil equivalent (including natural gas) from 8,035 barrels a year earlier.

The higher production pushed up Delphi’s cash flow by 40.1%, to $17.5 million from $12.5 million. Cash flow per share rose 25%, to $0.15 from $0.12, on more shares outstanding.

Delphi continues to acquire undeveloped land. It now owns over 244,000 acres, up 42% from a year ago. Its large landholdings continue to give it lots of drilling targets to increase its output and reserves.

The company’s $116.5 million of debt is a manageable 46.5% of its market cap. Delphi trades at only 3.6 times its forecast 2011 cash flow of $0.60 a share.

Delphi is a buy for aggressive investors.

ZARGON OIL & GAS $18.05 (Toronto symbol ZAR; TSINetwork Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 29.1 million; Market cap: $531.1 million; Dividend yield: 9.3%) produces oil and natural gas in Alberta, Manitoba, Saskatchewan and North Dakota. Its output is weighted 62% to oil and 38% to natural gas. This diversification helps cut its risk.

In the three months ended June 30, 2011, Zargon produced 8,686 barrels of oil equivalent per day. That was down 13.6% from 10,050 barrels a year earlier. Wet spring weather held back production. The company also sold some less important properties. The lower production pushed down Zargon’s cash flow per share by 13.0%, to $0.47 from $0.54 a year earlier.

The company recently raised $39 million by selling 1.725 million shares for $22.60 each. Zargon is using $10 million of these funds to raise its 2011 capital spending to $65 million.

That will let Zargon build on its recent drilling program: in the latest quarter, the company drilled three successful horizontal wells in the Alberta Plains North area.

Horizontal drilling involves drilling development wells sideways or at an angle to reach isolated pockets of gas, or to follow a reservoir spread out in a narrow layer. Horizontal drilling works well in places where conventional drilling is impossible or too expensive.

Zargon will also use some of the funds from its share issue to pay down debt. That will further cut its current debt of $95.8 million, which is a low 18.0% of its market cap.

The company pays a monthly dividend of $0.14, which gives the shares a high 9.3% yield. Zargon is forecast to report cash flow of $2.70 a share in 2011. The shares trade at 6.7 times that estimate.

Zargon Oil and Gas is a buy.


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