Although Zargon was able to divest its Southeast Saskatchewan properties for a good price, the company still retains just under 400boe/d of nearly 100% oil-producing properties in North Dakota.
As it turns out, there is finally a relative piece of information that gives insight on how to value the EOR project.
Whitecap Resources' (OTCPK: SPGYF) (TSE: WCP) recent acquisition of a very similar EOR asset gives us good insight on what a fair return price on Zargon's well-developed EOR asset might return on the open market.
Typically, integrated companies divide their various operations into categories: upstream, which includes all exploration and production endeavors, and downstream, which is confined to refinement and marketing activities.
Because integrated oil and gas companies are involved in so many facets of the fossil fuel industry, often their business bottom lines can be counterintuitive.
However, an integrated oil and gas company can be difficult to value when different types of production and operating assets are all lumped together, leading to potentially lowered market valuation.
An independent oil and gas company with only one type of operation brings a sharper focus to its business activity, such as eliminating competing resource allocations among different businesses.Zargon's current net debt of roughly Cmillion, contrasted against its previous debt of roughly C0million, puts the company in a much stronger financial position than before the sales occurred.As in my previous article, Zargon Oil And Gas Is Now Deeply Undervalued, Here's Why, I noted that the company's decision to divest a small portion of its assets to eliminate a large portion of its debt was an extremely wise decision on many points.The project's growth potential should not be ignored - projections from 2014 indicated that the EOR project could easily hit 1,600boe/d with additional capital injections.Such a buildup would prove lucrative in a higher price environment.With vertically integrated operations, an integrated oil and gas company is in direct contact with the energy end market and may gain certain market intelligence.