Zephyr Energy Plc (AIM: ZPHR): High production and income in the Williston
• 4Q22 sales volumes averaged 1,192 boe/d, resulting in 1,490 boe/d over FY22, which is near the top end of the FY22 sales guidance and in line with our forecasts. This was achieved despite the fact that number of Zephyr's existing production wells were temporarily shut-in during 4Q22 due to "frac-protect" procedures while new nearby wells were stimulated and completed.• FY22 revenue is estimated at US$42.9 mm, in line with the upgraded guidance of US$40-45 mm. FY22 operating income is estimated at US$35.7 mm, in line with our expectations.
• The FY23 production guidance of 1.55-1.75 mboe/d net production in the Williston Basin has been re-iterated.
• Pending the flow test results of the State 36-2 LNW-CC well, we re-iterate our target price of £0.20/sh. The ongoing programme has an unrisked value of £0.15/sh just based on the contingent resources in the Cane Creek reservoir on Zephyr acreage (39.25 mmboe net). Success in the C-9 reservoir around YE23 could add a further £0.12/sh.
High impact well test about to start in the Paradox
A 7” production casing has been run in State 36-2 LNW-CC well. In the coming weeks and subject to service availability, Zephyr plans to commence production testing and potential completion of the fractured Cane Creek reservoir interval. This is a very important well for the company that could add production and reserves. Testing operations at the State 16-2 LN-CC well were interrupted for a significant period in December and January due to weather. The well is back online and testing has once again resumed.
Valuation
Pending more details on the FY23 capex programme, we have not yet rolled forward our DCF by one year. We have taken a more conservative view of Henry Hub prices in 2023 but this does not have a material impact on our ReNAV (£0.19 per share). While Zephyr continues to provide exposure to high impact drilling activities, we also forecast that the company will generate free cash flow representing ~20-40% of its market cap from 2024 each year based on the Cane Creek reservoir alone.
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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