Zephyr Energy Plc (AIM: ZPHR): Gearing-up for the return to drilling in the Paradox
• 4Q23 production in the Williston was 1,053 boe/d. This only reflects oil and natural gas production. Adding our estimates of NGL production (reported in previous periods but not in 4Q23) would lead to ~1,200 boe/d (we forecasted ~1,400 boe/d).• While production reached 1,440 boe/d in late November (~1,650 boe/d including NGL), 4Q23 production was negatively impacted by the curtailment of production from the new Slawson wells in mid-December due to adverse weather condition and infrastructure constraints.
• Production from the Slawson wells resumed in late January.
• During February, ten additional wells were placed on production adding ~75 boe/d net production. The wells are performing ahead of expectations.
• With regulatory approvals in place, depending on rig availability, drilling of the State 36-2 well could start in April or May.
• We are cautiously reducing our production forecast in 1Q24 to ~1.1mboe/d by deferring 1/3 of 1Q24 production to 2Q24 and 3Q24.
• As we revisit our production forecast and activity assumptions for the Paradox in 2024, we have changed our target price to £0.12/sh in line with our new ReNAV.
• Overall production is expected to increase by 250% by 4Q24 (compared to the FY23 average production) and the drilling programme could unlock the Paradox (£0.13/sh unrisked just for the 2C contingent resources) and the Salt Wash helium (£0.03/sh unrisked for the 0.13 bcf of helium).
Revisiting our FY24 forecasts in the Paradox
We are now assuming that two wells will be drilled in the Paradox in 2024: (1) the twinning of the State 36-2 well and (2) the Salt Wash helium well (50% WI). Further exploration wells targeting prospective resources in sands overlaying the Cane Creek are likely to be drilled from 2025. We assume that production in the Paradox will start in late 3Q24/early 4Q24 with 10 mmcf/d plus condensate. The growing production and limited capex (since the costs of the State 36-2 well will be covered by insurance, we carry only US$7.5 mm total capex in 2024) suggests an important cash build-up in 2024 with net debt dropping from ~US$25 mm at YE23 to ~US$2 mm at YE24.
Valuation
We have rolled forward our DCF by one year to YE24. We have increased our Core NAV from £0.03/sh to £0.04/sh as our new YE24 net cash is now higher (due to lower capex spend that we previously anticipated). We are excluding the value of an exploration well in one of the reservoirs overlaying the Cane Creek (£0.04/sh) until we have better visibility on the timing of further exploration wells. Our new ReNAV is £0.12/sh.
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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