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.
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.
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, Financial) | 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.
