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Zenith Energy – Update Note

On the cusp of operational transformation & full steam ahead towards 1000 bopd in early 2018

Zenith Energy Limited is a dual listed LSE & TSX Venture Exchange oil & gas development and production company. In 2016 the company vastly expanded its oil and gas portfolio via a substantial acquisition in Azerbaijan which we anticipate will propel Zenith toward a mid-cap oil company valuation over the coming years.

• Unlocking value in Azerbaijan with a systematic program of workovers & drilling

  The 642.4km2 Muradhkanli Block is the largest onshore oil/gas concession in Azerbaijan, with 3 under-developed fields. Production is set to treble to 1,000 bopd within 6 months, at a cost of $11/barrel, but could grow substantially higher given the block produced 15,000 bopd using old Soviet technology.

• Diversification of geography/product provided by Italian gas assets

  The company also has significant gas producing assets in Italy which include the production of electricity and of condensate. There is an ambitious program to enhance the Italian daily gas production rate in the Puglia Region by 100% through a technical program employing additional workovers that will be financed using local cash flow.

• Attractive discount to E&P universe on compelling peer comparisons

  Zenith shares trade on an EV/2P ratio of just 0.48 against a peer median of 3.48. This illustrates starkly the stock’s potential upside once there is further evidence of successful oil development in Azerbaijan from drilling & which is planned to begin in April/May 2018.

• Heavily risked DCF analysis suggests in excess of 100%+ upside

  Valuing the Azerbaijan and Italian assets using a very conservative DCF model based on the CPR report gives a new sum-of-the-parts valuation of 22.28p per share. We remain buyers with a Conviction Buy stance.