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The Energy Select Sector SPDR ETF (NYSEARCA:XLE) was trading as low as $37.40 in March 2009. The index is currently trading at $81.23 or 117.2% above the low made in March 2009.


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In this article, I will feature one energy stock that has seen intensive insider buying during the last 30 days. Intensive insider buying can be defined by the following three criteria:

  1. The stock is purchased by three or more insiders within one month.

  2. The stock is sold by no insiders in the month of intensive purchasing.

  3. At least two purchasers increase their holdings by more than 10%.

Zargon Oil & Gas Ltd. (OTCPK:ZARFF) engages in the exploration, development, and production of oil and natural gas in Canada and the United States. Zargon has a 19-year history of creating value and solid returns for investors, during which time Zargon has returned $330 million ($16.88 per share) through distributions and dividends to its shareholders.


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Despite the record history performance, Zargon's share price has underperformed the Energy Select Sector SPDR ETF during the past two years.


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Insider buying by insider (last 30 days)

  • Leslie Burden purchased 271 shares on July 31 pursuant to a purchase/ownership plan. Leslie Burden currently controls 19,131 shares or less than 0.1% of the company. Leslie Burden is Vice President, Land.
  • Randolph Doetzel purchased 313 shares on July 31 pursuant to a purchase/ownership plan. Randolph Doetzel currently holds 2,366 shares or less than 0.1% of the company. Randolph Doetzel is Vice President, Operations.
  • Jason Dranchuk purchased 342 shares on July 31 pursuant to a purchase/ownership plan. Jason Dranchuk currently controls 21,910 shares or less than 0.1% of the company. Jason Dranchuk is Vice President, Finance and Chief Financial Officer.
  • Craig Hansen purchased 437 shares on July 31 pursuant to a purchase/ownership plan. Craig Hansen currently controls 1,257,586 shares or 4.2% of the company. Craig Hansen is President and Chief Executive Officer of the company.
  • James Harrison purchased 14,700 shares on August 14 and currently holds 128,582 shares or 0.4% of the company. James Harrison is Chairman of the Board.
  • Christopher Hustad purchased 287 shares on July 31 pursuant to a purchase/ownership plan. Christopher Hustad currently holds 10,325 shares or less than 0.1% of the company. Christopher Hustad is Vice President, Alberta Plains South.
  • Pete Janjua purchased 287 shares on July 31 pursuant to a purchase/ownership plan. Pete Janjua currently holds 4,728 shares or less than 0.1% of the company. Pete Janjua is Vice President, Williston Basin.
  • Brian Kergan purchased 335 shares on July 31 pursuant to a purchase/ownership plan. Brian Kergan currently controls 76,656 shares or 0.3% of the company. Brian Kergan joined Zargon in 2007 as Vice President, Corporate Development.
  • Kevin Lee purchased 287 shares on July 31 pursuant to a purchase/ownership plan. Kevin Lee currently controls 15,155 shares or less than 0.1% of the company. Kevin Lee is Vice President, Alberta Plains North.
  • Geoffrey Merritt purchased 600 shares on August 14 and currently holds 11,961 shares or less than 0.1% of the company. Geoffrey Merritt serves as a director of the company.
  • Robert Moriyama purchased 297 shares on July 31 pursuant to a purchase/ownership plan. Robert Moriyama currently holds 7,620 shares or less than 0.1% of the company. Robert Moriyama is Vice President, Enhanced Recovery.

Insider buying by calendar month

Here is a table of Zargon's insider-trading activity by calendar month.

Month Insider buying / shares Insider selling / shares
August 2013 15,300 0
July 2013 24,619 11,500
June 2013 272,849 0
May 2013 346,001 0
April 2013 68,375 1,000
March 2013 111,999 0
February 2013 2,478 0
January 2013 6,488 0

There have been 848,109 shares purchased and there have been 12,500 shares sold by the insiders this year.

Financials

Zargon reported the second-quarter financial results on August 8 with the following highlights:

Revenue $40.6 million
Funds flow from operations $16.0 million
Net income $1.1 million
Net debt $111.3 million
Production 7,392 boe/d


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Production guidance

  • For the 2013 third quarter, oil and liquids production guidance is set at 4,650 barrels of oil per day and includes the second quarter dispositions of 130 barrels of oil and liquids per day. Third quarter natural gas production guidance is set at 14.7 million cubic feet per day.
  • Full-year 2013 average oil and liquids production is expected to range between 4,750 to 4,850 barrels of oil per day, with exit rates ranging from 4,500 to 4,650 barrels of oil per day. Full-year 2013 average natural gas production is expected to range from 14.7 to 14.9 million cubic feet per day, with exit rates ranging from 14.4 to 14.7 million cubic feet per day.
  • Zargon expects that first quarter 2014 production volumes will represent both an oil production low and a turning point for Zargon, as in subsequent quarters, significant production volumes will begin to materialize from the ASP project which will augment stable production volumes from conventional oil exploitation properties.


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Capital budget

Zargon's 2013 non-ASP field capital budget has been set at $40 million (before dispositions) of which approximately $19 million remains to be spent in the remaining two quarters. Additionally, Zargon's 2013 capital budget included $20 million of property dispositions, of which $15.1 million have been completed by the end of the second quarter.


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Little Bow Alkaline Surfactant Polymer [ASP] Project

ASP capital expenditures in the second half of 2013 to complete phase 1 of the project are budgeted at $30 million, and include $1 million for the initial charge of ASP chemicals. For 2014, ASP capital expenditures will be limited to $10 million of chemical costs. Combined with Zargon's initial estimate of the 2014 conventional program of $35 million, the total 2014 capital program is forecast to be $45 million. Based on this 2014 capital program, Zargon expects oil production to steadily grow from first quarter levels throughout 2014 as stable conventional oil production volumes are augmented by growing Little Bow ASP oil production volumes.


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Competition

Zargon's competitors include Vermilion Energy (NYSE:VET), Pengrowth Energy (NYSE:PGH), Arc Resources (OTCPK:AETUF), Enerplus Corporation (NYSE:ERF), Renegade Petroleum (OTC:RPTTF), Twin Butte Energy (OTCPK:TBTEF), Spyglass Resources (OTCQX:SGLRF), Bonavista Energy (OTCPK:BNPUF), Baytex Energy Corp. (NYSE:BTE), Trilogy Energy (OTCPK:TETZF), Whitecap Resources (OTC:SPGYF), Peyto Exploratio & Development (OTCPK:PEYUF) and Lightstream Resources (OTCPK:LSTMF).


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Zargon's average annual decline rate is below the peer average. Vermilion Energy, Pengrowth Energy, Baytex Energy, Whitecap Resources and Peyto Exploration & Development have seen insider selling during the past 30 days. Arc Resources, Twin Butte Energy, and Spyglass Resources have seen insider buying during the past 30 days.

Conclusion

There have been 11 different insiders buying Zargon and there have not been any insiders selling Zargon during the past 30 days. Two out of these 11 insiders increased their holdings by more than 10%. Zargon has an insider ownership of 7.8% and the stock has a dividend yield of 9.73%.

The biggest risk for the stock is the price of oil. Zargon has hedged more than 50% of its estimated oil production volumes for the next 12 months.


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Zargon's Proved plus Probable Net Asset Value is $12.79 per share. The 200-day moving average is currently at $6.83, which could be a good entry point for the stock.


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Source: Insiders Are Buying Zargon Oil & Gas