Report
Stephane Foucaud

Zephyr Energy Plc (AIM: ZPHR): Funding secured for the Paradox

• Zephyr has now entered into binding documentation to fully-fund all expected drilling, completion and production test costs for the 5,500 ft extension and acidization of the State 36-2R well. The funding has increased to US$7.5 mm (US$7.0 mm previously).
• In return, the funding partner will earn a 50% WI in the well. The wellbore investor will cover its pro rata portion of the well's operating and overhead costs. Net revenues from the well will be split 50:50 between Zephyr and the wellbore investor from the time of first production, with no catch-up period or other preferential rights to the investor.
• This is a very favorable transaction for Zephyr. There is no issuance of Zephyr's equity or any form of debt as part of the funding, and the wellbore investor will not receive any further interest or option in the Paradox project.
• This transaction highlights the quality and potential of the project and provides an implied value for the project at this early stage of maturity.
• We have considered two approaches to estimate the implied value of the transaction. (1) The investor provides Zephyr with a net funding of US$3.75 mm in return for 50% interest in the well. This values the well at US$7.5 mm (US$3.75 mm x 2). (2) The investor is investing US$7.5 mm in the well in return for 50% of the production. This suggests that 50% of the well has a Present Value >US$7.5 mm (US$15 mm PV for 100% of the well). On a 20-30 well development, the implied value for the Cane Creek formation is therefore US$150-450 mm (£0.06-0.18 per share).
• The US$7.5 mm is risked capital and as the project matures, the value of the project should increase. There are also eight further overlaying formations that have not yet be appraised.
• Drilling will start in January. The results of the well test are expected in 1Q25.
• We re-iterate our target price of £0.13 per share.

Valuation
Our ReNAV is broadly unchanged at ~£0.13/sh. Fully derisking the Cane Creek contingent resources would add £0.12 per share to our Core NAV or £0.03 per share to our ReNAV.
Underlying
Zephyr Energy

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.

Provider
Auctus Advisors
Auctus Advisors

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. 

Analysts
Stephane Foucaud

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