Zephyr Energy Plc (AIM: ZPHR): Small equity raise to address capex increase and production delay
• Zephyr has raised £3.15 mm of new equity priced at 3.5 p per share.• The funding addresses a shortfall created by the combination of an increase in capex due to the blow-out at the State 36 2 well in the Paradox and a six month delay in bringing the Slawson wells in the Williston into production due to the related surface facilities buildout being late.
• Much of the additional cost associated with the blow-up of well State 36-2 will be reimbursed by Zephyr’s insurance but there is a lag between when the costs are paid by Zephyr and when Zephyr is reimbursed.
• As we incorporate the 5% equity dilution and a delay in production start-up in the Paradox from 4Q23 to 1Q24, we are changing our target price to £0.18 per share.
Testing of State 36-2 well expected to restart in June
The testing of the State 36-2 well is expected to restart this month. This is a key well for Zephyr. The well could produce more than initially expected and therefore require a larger gas processing facility. We are currently assuming 10 mmcf/d (plus condensate) but this could reach 15 mmcf/d. The well is also expected to have positive implications for the company’s reserves position given that 39 mmboe 2C contingent resources have been estimated in the Cane Creek reservoir from which the State 36-2 well will produce.
Forecasts and Valuation
Most of the FY23 capex will be deployed during 1H23. While 1H23 capex is higher than expected, we have reduced our FY23 and FY24 capex expectations from US$34 mm to US$24 mm and from US$58 mm to US$44 mm (three new Paradox wells in 2024) as we have taken out two exploration wells from our forecasts and incorporated better expected performance from the Paradox wells. With the Slawson, State 36-2 and State 16-2 wells onstream, we forecast overall net production increasing from ~1 mboe/d in 1Q23 to >4.5 mboe/d in 1Q24 and >7.5 mboe/d in 4Q24. We forecast Zephyr to hold ~US$18 mm in net cash by YE24, up ~US$48 mm from our net debt estimate of ~US$30 mm at the end of June 2023.
We have reduced our ReNAV from £0.19 per share to £0.18 per share as we incorporate the 5% dilution associated with the equity raise. We have set our target price in line with our new ReNAV. Our unrisked NAV for the 39 mmboe 2C contingent resources in this reservoir is £0.15 per share.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.