Zephyr Energy Plc (AIM: ZPHR): Adding a helium asset in the Paradox
• Zephyr is acquiring a minimum of 75% WI in a 1,047-acre leasehold position in the Salt Wash field which lies three miles to the south of the company’s WSU. Salt Wash was discovered in 1961 and produced 1.65 mmbbl from a 15 feet oil rim and 11.7 bcf of natural gas. Above the oil rim is a 500 feet gas column consisting of 72% of nitrogen, 22% of hydrocarbon and 1.4-1.7% of helium.• In the context of helium prices of up to ~US$1,000/mcf, the estimated 0.07-0.19 bcf of discovered helium plus 0.04-0.66 bcf of prospective resources could be very valuable. Using our valuation for the Topaz helium project (Pulsar Helium), the unrisked value of 0.13 bcf of helium at Salt Wash could be ~US$60 mm (~£0.03/sh). Many nearby Paradox Basin operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for helium.
• The Cane Creek reservoir is also present at Salt Wash and the Upper Leadville formation (the historical production comes from the Leadville) is a secondary target.
• The consideration for acquiring 100% WI in Salt Wash consists of two payments of US$0.3 mm each due within 30 days and 60 days of the transaction and the drilling of one well (US$6 mm) to be spudded in 1H24 and targeting the three plays (Cane Creek, helium and U. Leadville. The seller has the option to back-in for 25% after the well is drilled.
• Zephyr will redrill Well 36-2 where the tubing is stuck. The insurance is expected to bear the cost of twinning the well in 1Q24. The 36-2 wellbore may have future re-use potential such as a vertical host for a new target.
• We have incorporated the helium discovered resources in our valuation and re-iterate our target price to £0.16/sh in line with our ReNAV.
Balance sheet
Zephyr held US$6.2 mm in cash at the end of June. Total debt was US$33.7 mm. The size of the revolver is driven by oil price and production. We anticipate the borrowing base will grow. Combined with first cashflow from the Slawson wells expected in 1Q24, this leaves ample cash resources to fund the 2024 programme that we currently estimate at ~US$23 mm plus the short term funding requirement during the period between paying the invoices and being reimbursed for the redrill of Well 36-2.
Forecasts and Valuation
Pending further details on the Salt Wash helium project, we have conservatively assumed a 20% chance of development for the time being. This results in a ReNAV of £0.01/sh. Our new total ReNAV for Zephyr is £0.16/sh. Our unrisked NAV for the 39 mmboe 2C contingent resources in the Cane Creek reservoir targeted by the State 36-2 well in the Paradox basin is £0.12/sh while our unrisked NAV for the helium contingent plus prospective resources (average of 0.5 bcf) is £0.10 per share.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.