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Zodiac Exploration (TSX:ZEX)—Share Price Doubles in a Week on Drilling Results, But Insiders Continue Buying…What do They Know?

March 27, 2011 | About:
CanadianValue

CanadianValue

210 followers
I try not to get too interested in exploration plays because if the exploration turns out to be a failure you are left with nothing. So I usually try and stick to undervalued existing reserves with an exploration or enhanced oil recovery kicker.

But this week, one exploration venture piqued my curiosity. Be warned—I don’t know much about the company, as I hadn’t looked at it until this week.

The story: Zodiac Exploration Inc. (ZDEXF) owns 85,000 contiguous acres in the San Joaquin basin in California. That is a lot of land for a company of its size to own.

The San Joaquin basin and much of California was locked down by major oil companies decades ago. The majors focused on reserves that were fairly shallow, and the deeper depths have been largely unexplored. In fact there has been no drilling on Zodiac’s property in over 25 years.

You know where I’m going with this. Zodiac (ZDEXF) thinks there is something interesting deeper in the ground than where the majors have produced from. In the prospect that Zodiac is currently looking at called “Jaguar” their reserve engineers (Sproule) have a best estimate of 4.1 billion barrels of potential oil in place ($3.3 billion net to Zodiac). Be warned that is potential, and there could well be nothing there. But clearly the potential is big. Especially for a company with a $300 million or so market cap.

The upside potential is many multiples of the stock price.

So that is a nice story, and normally I’d just leave it at that. But they had a very interesting news release this week:

CALGARY, ALBERTA – Zodiac Exploration Inc. (“Zodiac” or the “Company”) (TSX VENTURE:ZEX) announced today that its first evaluation well (the “4-9 well”) on the Jaguar prospect in Kings County, California, has reached a total depth of 14,961 feet in the Kreyenhagen Formation and a 7 inch production liner has been set from 12,948 feet to 14,950 feet.

Murray Rodgers, President & CEO, commented, “I am extremely pleased with our results to date, all of the Company’s expectations have been met. We have logged over 1,000 feet of potential pay despite having stopped drilling within a potential reservoir. We observed high gas readings, oil fluorescence in drill cuttings, and natural fractures with live oil in core, in the Allison/Whepley, Vaqueros, and Tumey/Kreyenhagen Formations. These observations occurred despite mud weights which exceeded on average 15.2 pounds per gallon. Continuous background gas readings of approximately 50 units with gas readings of up to 1400 units were recorded on mud logs over this entire interval with gas shows having compositions of C1-C5 which is characteristic of an oil charged system.

It is Zodiac’s view that we are rapidly moving towards proving up a major light oil accumulation. Further confirmation is required, with the next step in this process being the upcoming testing program for the 4-9 well which is expected to provide us with valuable reservoir data that will assist the Company in optimizing its completion strategy for future wells.


After this release, which seemed to confirm the hopes of many people watching the company, the stock price shot up from .50 cents to .90 cents. On Friday last week it hit $1.10. I can’t ever recall seeing a stock double in a week and then see insiders buying pretty aggressively.

But the following insiders still thought enough of what they learned from the drilling results to make these acquisitions after the huge increase in the stock price.




Zodiac Exploration Inc. (ZEX)



As of March 27th, 2011


Filing Date


Transaction Date


Insider Name


Ownership Type


Securities


Nature of transaction


# or value acquired or disposed of


Unit Price


Mar 25/11


Mar 25/11


Robinson, Stanley Clay


Direct Ownership


Common Shares


10 - Acquisition in the public market


46,700


$1.100


Mar 25/11


Mar 23/11


Robinson, Stanley Clay


Direct Ownership


Common Shares


10 - Acquisition in the public market


57,800


$0.920


Mar 25/11


Sep 28/10


Robinson, Stanley Clay


Direct Ownership


Common Shares


00 - Opening Balance-Initial SEDI Report






Mar 25/11


Mar 23/11


Rodgers, William Murray


Indirect Ownership


Common Shares


10 - Acquisition in the public market


22,000


$0.920


Mar 25/11


Sep 28/10


Rodgers, William Murray


Indirect Ownership


Common Shares


00 - Opening Balance-Initial SEDI Report






Mar 25/11


Mar 23/11


Rodgers, William Murray


Indirect Ownership


Common Shares


10 - Acquisition in the public market


40,500


$0.900


Mar 25/11


Mar 23/11


Rodgers, William Murray


Indirect Ownership


Common Shares


10 - Acquisition in the public market


42,000


$0.920


Mar 25/11


Sep 28/10


Rodgers, William Murray


Indirect Ownership


Common Shares


00 - Opening Balance-Initial SEDI Report






Mar 25/11


Mar 23/11


Rodgers, William Murray


Indirect Ownership


Common Shares


10 - Acquisition in the public market


48,000


$0.920


Mar 23/11


Mar 23/11


Hoeppner, Jacob


Direct Ownership


Common Shares


10 - Acquisition in the public market


22,200


$0.880




Oh, to know what they know! It certainly wouldn’t surprise me if this one ended up being a multi-bagger from here over the next couple of years. But it will likely be without me as a shareholder, as I have promised myself to stick to my plan and invest where I think there is a very small chance of a permanent loss of capital. In this case, if the exploration program doesn’t work out, there likely isn’t much justifying the current stock price.

Or I’m passing on a twenty-bagger. Likely one or the other.

About the author:

CanadianValue
http://valueinvestorcanada.blogspot.com/

Rating: 3.0/5 (5 votes)

Comments

AlbertaSunwapta
AlbertaSunwapta - 3 years ago
I know oxy has been taking another look at California for a few years now (accumulating land). Do you know if they both chasing the same types of reservoirs?

I'm back - here it is... turned out that I'd read it on Gurufocus. :-)

FPA Capital.. OXY in California

http://www.gurufocus.com/news.php?id=95649
stanh30
Stanh30 - 3 years ago
According to the company's Annual Information Form for the period ended September 30, 2010:

Murray Rodgers had 5,727,515 shares

Stanley Clay Robinson had 725,00 shares

Jacob Hoeppner had 14,500 shares

According to the above article:

Murray Rodgers added 152,500 shares (2.7% increase) for a cost of $75,090

Stanley Clay Robinson added 104,500 shares (14.4% increase) for a cost of $124,786

Jacob Hoeppner added 22,200 shares (153% increase) for a cost of $19,536

Additionally, on April 1st Zodiac Exploration annouced that it has granted an aggragate of 4,000,000 stock options to certain directors, officers, employeees and consultants of the company. The stock options are exercisable at a price of $1.05 per common share and will vest as to one-third on the date of the grant, one-thrid on the first anniversary date of the grant, and the remaining one-third on the second anniversary date of grant and shall expire five years from the date of grant. The total number of stock options granted to directors, officers, employees and consultants of the company as of the date hereof is 13,986,000
AlbertaSunwapta
AlbertaSunwapta - 3 years ago
Yup I just noticed the major options granting taking place. That's one strike against management.
AlbertaSunwapta
AlbertaSunwapta - 3 years ago
Canadianvalue, if you haven't already, you might want to look into WEE as well. (I have a small speculative position in it.) If you find it interesting / below intrinsic value let us know what you think.

As for ZEX - the immediacy of the granting of options following direct purchases is intriguing to me. I don't know if that is a common occurrence with insider buying or a possible indication of near term news. (Insiders buy 20 - 100,000 shares and shortly thereafter are granted up to a million options. (Growing internal optimism, performance requirements, or just PR?)

Any thoughts?

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