Wire.com That Helped Boost Zodiac Exploration….
Friday, August 30, 2013 · Posted in Oil & Gas, OIL & Gas Companies · by Peter Epstein
It’s late Friday afternoon, before a 3-day weekend in the U.S. Stock market trading volume was quite anemic, yet Zodiac Exploration [ZEX.V / ZDEXF] had an extraordinary day with ~12 million shares traded. The stock touched a 6-month high of 12.5c per share before closing at 12c. Clearly, shareholders and new investors want to own this stock heading into September.
The following four articles from Au.Wire.com, all from within the past month, helped spark the rally in Zodiac, doubling the share from 6c per share on July 31st. These articles are among several other key news items, (articles on the Monterey shale, Stockhouse.com commentary and message board posts), that have greatly increased awareness of this mispriced, under-followed and overlooked stock.
Article 1::
Article 2:
Article 3:
Article 4:
More recently, this excellent nine-minute video interview of Zodiac’s CEO ties a lot of the pieces together.
Where Do We Go From Here?
There remain several bullish fundamental considerations for September and beyond. First, the price of oil has increased significantly, largely on July’s Syria / Egypt news. It’s important to recognize that oil produced in the San Joaquin basin commands prices closer to Brent than WTI. Brent oil is currently at ~$115 per barrel. Second, while there’s a great deal of speculation about the prospective value of Zodiac’s ~72k net acres, news coming as soon as September could provide an important valuation benchmark. Less discussed, another Farm-out or JC would further reduce the company’s cash burn rate. If Zodiac announces a new JV or Farm-out, the deal metrics (combined with the read through on the Aera Energy LLC farm-out) could add fuel to the stock price fire.
Given that I strongly believe that the Aera Energy Farm-out news was largely ignored, possibly due to overall weakness in TSX-listed stocks, the announcement of a new deal in September could validate and refocus attention on the very robust metrics of the Aera deal. Third, the coming U.S. listing of Zodiac will introduce the story to a wider and perhaps even a global audience. Finally, September is frequently a time when hedge fund managers return from summer vacations ready to deploy risk capital again, i.e. “sell in May, come back after Labor Day….”
Upside From 12c Per Share Still Dominates the Possible Downside!
The things that could hurt Zodiac’s stock price in coming months are;
1) a decline in the price of Brent oil to below $100/barrel, (currently at $115/barrel)
2) a JV or Farm-out deal deemed unattractive by the market
3) bad news from a peer in the Monterey oil shale basin and
4) bad news from Politicians or Environmentalists in the State of California regarding fracking
These ongoing risk factors are of course important to watch, but an update on the JV / Farm-out process should come before any of these potential other events. We could be just weeks away from a new deal that, (in conjunction with the Aera Energy Farm-out) could imply a valuation on 50% or more of Zodiac’s property in the thou$and$/acre. Therefore, I strongly believe it is unwise to sell Zodiac stock ahead of an update on corporate initiatives, hopefully in September. Downside risk on the stock over the next several weeks should be modest.
September COULD be Another Strong Month of Zodiac Stock Gains
However, upside in September could be dramatic. I see no reason why the stock couldn’t double again upon the announcement of a robust JV or Farm-out agreement that both validates and draws attention to the Aera Energy deal. As strong as August was for the stock, there’s ample reason to believe that September could be just as good! Remember, September trading starts on Monday in Canada and Tuesday in the U.S. |
