ZARGON OIL & GAS $14.04 - Toronto symbol ZAR

ZARGON OIL & GAS $14.04 (Toronto symbol ZAR; TSINetwork Rating: Speculative) (403-264-9992; www.zargon.ca; Shares outstanding: 29.4 million; Market cap: $412.8 million; Dividend yield: 8.6%) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. The company’s production is 61% oil and 39% natural gas.

In the three months ended December 31, 2011, Zargon produced 9,278 barrels of oil equivalent per day. That’s down slightly from 9.317 barrels a year earlier. However, that was mainly because the company sold some less important properties. Higher oil prices pushed up Zargon’s cash flow per share by 7.4%, to $0.58 from $0.54 a year earlier.

The company continues to successfully drill 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. This method works well in places where conventional drilling is impossible or too expensive.

Zargon pays a monthly dividend of $0.10 a share, for a high 8.6% yield. The company expects to report cash flow of $2.60 a share in 2012. The shares trade at 5.4 times that estimate.

Zargon Oil and Gas is a buy.

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