Zephyr Energy Plc (AIM: ZPHR): Key Paradox well test results expected in April
• FY24 sales volumes averaged 1,149 boe/d including 139 bbl/d of NGL. The NGL sales were higher than we were anticipating (~100 bbl/d) but FY24 production of 1,052 boe/d was impacted by downtime experienced in the Williston Basin in 4Q24 due to extreme weather in the area. 4Q24 net production was 829 boe/d (plus NGL that we estimate at 90-100 bbl/d).• In the Paradox basin, 97% of the lateral in the State 36-2 LNW-CC-R well was drilled in the Cane Creek reservoir with elevated mud gas levels.
• Zephyr plans to perforate 16 stages with completion operations due to commence next week. The initial production test results are expected to be available in mid to late April.
• The results of this well test are very important as they would unlock Zephyr’s assets in the Paradox. Our unrisked NAV for the ~40 mmboe 2P reserves + 2C resources in the Cane Creek reservoir is £0.15 per share. There are eight overlaying reservoirs above the Cane Creek with 270 mmboe prospective resources.
• We forecast first production from the Cane Creek in 4Q25.
• We re-iterate our target price of £0.13 per share.
Revisiting our forecasts
Considering the time required to build the necessary processing facilities, we now anticipate that production in the Paradox will commence in 4Q25 using the existing wells. We are cautiously projecting a constrained production rate of 5 mmcf/d (plus liquids), which is expected to increase in 1Q26. Additional development wells are now assumed to be drilled in 2026 rather than from 4Q25. As a result, we forecast minimal capital expenditure in the Paradox in 2025, with (1) ongoing testing operations funded by the existing financial partner, and (2) deployment of a leased facility combined with existing equipment owned by Zephyr.
Valuation
As we incorporate lower capital expenditures in 2025, our new production profile in the Paradox, and the appreciation of the pound sterling against the US dollar, our ReNAV is ~£0.13 per share. We are also rolling forward our DCF model by one year to YE25. Fully derisking the Cane Creek contingent resources would add £0.13 per share to our Core NAV of £0.03 per share. Our unrisked NAV for the Salt Wash helium play is £0.03 per share. Notably, the ENEOS Group, Japan’s largest energy, resources, and materials conglomerate, recently became a strategic shareholder in a junior helium company in North America. This underscores the strategic value of North American helium.
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.
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