Zephyr Energy Plc (AIM: ZPHR): Potential for helium well to be drilled mid 2024
• In October 2023, Zephyr announced the acquisition of at least a 75% WI in the Salt Wash field, located ~3 miles to the south of the Paradox project.• Salt Wash has a 15 feet oil rim, above which is an inert gas cap (~500 feet of gas column) which consists of ~72% nitrogen, 22% hydrocarbon gases, and 1.4% to 1.7% helium content.
• The field was abandoned in 2014 after having produced 1.65 mmbbl of oil and 11.7 bcf of natural gas. Zephyr believes that producible gas remains in the reservoir as the focus of the previous development was to produce oil.
• Salt Wash is estimated to hold 0.07-0.19 bcf of net helium discovered resources plus 0.04-0.66 bcf net helium prospective resources. The presence of helium, which is currently sold at up to US$1,000/mcf, could support a high value development.
• Equity investors are showing growing interest for US helium, which could benefit Zephyr. Following the positive drilling results at its key helium asset in Minnesota with ~0.26 bcf discovered resources of helium, the market cap of Pulsar Helium has increased to >£50 mm. The readthrough value for Zephyr’s 0.13 bcf of discovered helium (mid case) is ~£25 mm.
• Zephyr has already paid the vendor of Salt Wash US$0.6 mm and Zephyr now needs to spud a well before the end of June (gross cost ~US$6 mm), with the vendor having the right to back-in for 25% once the development plan has been proposed. The Company is in discussions with funding partners with a goal to finance the drilling of the initial Salt Wash well at the asset level. Many nearby Paradox oil and gas operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for produced helium.
• We re-iterate our target price of £0.12 per share. Our unrisked value for the discovered helium resources at Salt Wash is £0.03 per share with an upside case of £0.12 per share.
Drilling operations have started in the Paradox
Initial drilling operations have commenced at the State 36-2R twin well in the Paradox, with full drilling commencing mid-April. This is a very important well that could add reserves and production and derisk the overall play. Our unrisked NAV for the well is £0.13 per share.
Valuation
Our ReNAV is unchanged at £0.12 per share. Overall production is expected to increase by 250% by 4Q24 (compared to the FY23 average production). We also forecast a rapid repayment of the company’s debt facility.
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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