Zephyr Energy Plc (AIM: ZPHR): ~35 mmboe net 2P reserves in the Paradox – From exploration to value and growth
• Zephyr is estimated to hold 35.2 mmboe net 2P reserves (net of royalty) and 74.2 mmboe 3P plus contingent resources in the Paradox. The 2P case assumes 12 drilling locations, including 3 existing wells. These volumes are materially higher than in the 2022 CPR (25x for 2P) and align with the May management estimates (25.6–89.5 mmboe vs. 35.2–74.2 mmboe in the new CPR’s 2P–3P+2C range). The 3P+2C case includes 11 additional locations (further from the existing wells) vs. the 2P case.• The CPR assigns a ~US$101 mm NPV10 to the 2P case. Upside remains: it assumes flat pricing of ~US$62.5/bbl WTI and ~US$3.5/mcf HH, vs. our US$67/bbl and US$4.5/mcf. West Coast gas sales could boost realizations. The CPR also uses a US$9/bbl condensate transport cost—nearly 2x the historical US$4–5/bbl which we expect to revert to more historical norms.
• The CPR’s type curves assume ~10,000 ft laterals; extending to 15,000 ft could unlock further volumes.
• Organic production ramp-up is relatively slow as it is limited by balance sheet constraints (2P plateau of ~40 mmcf/d). Despite >2x the resources, the 3P+2C case adds only 58% to the CPR NPV10 due to the long ramp-up. A funding partner could accelerate growth, which would in turn provide enhanced NPVs. The CPR estimates substantial undiscounted free cash flows of US$400–880 mm across the 2P and 3P+2C cases.
• This could be just a starting point. The CPR volumes cover only the Cane Creek reservoir across 20,000 acres in the WSU (covered by 3D seismic). Zephyr also holds 26,000 adjacent acres not yet included. Zephyr has already nominated further acreage. Additionally, there are 270 mmboe 2U prospective resources in the upper sands.
• Following updates to our production and cost assumptions, we have raised our target price from £0.15/sh to £0.16/sh. With the Paradox now materially derisked, Zephyr has transitioned from an exploration-led story to a value play with embedded growth and exploration upside.
Valuation
We have raised our Core NAV from £0.04/sh to £0.07/sh following the uplift in 2P volumes. The shares now trade at a 60% discount to Core NAV for the first time. Our new ReNAV of £0.16/sh reflects only the risked value of the 3P+2C case, 1 Paradox upper sand (out of 8) with ~35 mmboe prospective resources and Salt Wash helium. The variance between our Paradox valuation and the CPR stems from our assumptions of higher commodity prices, lower condensate transport costs, and a more efficient development plan. Additional upside lies in the 26,000 acres of Paradox acreage outside the WSU, not yet covered by 3D seismic, and 7 overlying sands above the Cane Creek with ~235 mmboe prospective resources.
Rose Petroleum is an oil and gas (O&G) and mining company with exploration assets and an operational crushing and flotation mill. Co.'s principal activities are the exploration and development of O&G resources together with the evaluation and acquisition of other mineral exploration targets, principally gold, silver, uranium and copper, and the development and operation of mines in Mexico. In Co.'s O&G division, the area of focus is on two unconventional oil and gas basins in the U.S.: the Uinta Basin and the Paradox Basin. In its mining division, Co. continues its milling operations through its subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill in Mexico.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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