BELLATRIX EXPLORATION (Toronto symbol BXE; www.bellatrixexploration.com) produces natural gas (70% of output) and oil (30%) in Alberta, B.C. and Saskatchewan.
Bellatrix closed its $756-million cash-and-stock purchase of Angle Energy in early December 2013. The deal added 500 drilling targets to Bellatrix’s inventory, bringing its total to over 2,000, and doubled its undeveloped land base to over 400,000 acres.
In addition, Angle produces 10,500 barrels of oil equivalent a day (58% oil and 42% gas) in Alberta. That let Bellatrix end 2013 with record production of 38,000 barrels a day. Several new wells about to enter production will boost that figure to 40,000.
Meanwhile, Bellatrix continues to enter into joint ventures to speed up the development of its Cardium shale oil deposits in west-central Alberta. Its partners will spend $240 million this year for a share of production from certain new wells.
On top of that, Bellatrix will spend $370 million on exploration and development in 2014. It aims to drill a total of 146 wells—115 oil and 31 gas.
The stock is up 60% for us over the past year.
Energy stocks: Zargon aims for long-term payoff with costly oil recovery project
ZARGON OIL & GAS (Toronto symbol ZAR; www.zargon.ca) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 64% oil and 36% gas.
In the quarter ended September 30, 2013, Zargon produced 7,560 barrels of oil equivalent a day, down 1.0% from 7,634 a year earlier. That’s because it sold some less important properties and cut back on natural gas drilling in response to lower gas prices.
However, higher oil and gas prices in the latest quarter more than offset the lower output, raising the company’s cash flow per share by 14.6%, to $0.55 from $0.48.
Zargon expects cash flow of $1.66 a share in 2014. Its dividend yields a high 8.6%.
The company’s outlook is positive, but high development spending at its alkaline surfactant polymer (ASP) enhanced oil recovery project at Little Bow, Alberta, could hold back its near-term production.
This project is costly, and it’s diverting funds from Zargon’s conventional oil well drilling.
The company acquired the Little Bow plant from Masters Energy in 2009. ASP is a new process that floods oil wells with a chemical mixture when water is no longer effective. The alkali in the mixture penetrates the rock and frees trapped oil.
In the latest edition of Stock Pickers Digest, we look at Bellatrix’s production targets and cash flow forecast for 2014 and whether the shares can continue to rise. We also examine whether output from Zargon’s oil recovery project at Little Bow is likely to offset its high costs in the year ahead. We conclude with our clear buy-hold-sell-advice on these two stocks.
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