Zephyr Energy Plc (AIM: ZPHR): Refining the path to first production in the Paradox. About to start drilling in the Rockies
• The Paradox initial processing capacity is envisaged to be able to handle 5-10 mmcf/d. Our base case assumes a conservative 5 mmcf/d, although throughput capacity is expected to increase with the tie-in of additional wells, including 16-2LN-CC and 28-11. Notably, the plant’s initial capacity is below the production potential of the 36-2R well.• The light condensate (52–60° API) produced is expected to command a premium over benchmark crudes, given its suitability for blending with lower-quality waxy grades.
• Monthly gross revenue from the first phase is projected at US$1.6–3.2 mm, excluding NGL sales - in line with our estimates.
• Zephyr’s preferred offtake solution is the nearby 16-inch export pipeline, located just 70 metres from the gas plant. The pipeline has ample spare capacity, capable of handling both initial volumes and future expansion. Condensate and NGLs will be trucked to end buyers. Zephyr is also evaluating other monetization routes, including cryptocurrency mining operations and compressed natural gas (CNG) buyers. Discussions on the primary pipeline tie-in are at an advanced stage.
• Zephyr has received notice of 13 wells scheduled for imminent drilling in the Rockies, with net capex of ~US$2.5 mm. This may be funded through the US$100 mm strategic partnership facility.
• We re-iterate our target price to £0.15 per share in line with our ReNAV. This valuation excludes the potential upside from new Rocky Mountains drilling and potential Paradox resources beyond the current 3D seismic coverage (~50% of the acreage) and the Cane Creek reservoir, above which lie eight analogous horizons.
CPR and partnering in the Paradox
A revised CPR from Sproule is anticipated in 3Q25, with a material resource upgrade expected. Zephyr plans to provide a detailed operational update on the Paradox project in mid-August, offering further clarity on development progress and resource potential. The company has commenced discussions with potential farm-in partners, including both industry players and financial investors, to support future development of the Paradox asset.
Valuation
Our Core NAV is £0.04 per share with a ReNAV of £0.15 per share. Our total unrisked NAV, including the shallower reservoir overlying the Cane Creek in the Paradox, is ~£0.81/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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