Zephyr Energy Plc. (ZPHRF:OTCQB; ZPHR:LSE) raised £3.15 million of equity to address a production delay and a capex increase, reported Auctus Advisors analyst Stephane Foucaud in a June 6 research note. To account for these factors and resulting dilution, Auctus lowered its target price on the oil and gas explorer-producer to £0.18 per share from £0.20.
Potential Return Attractive
Despite the decrease, the implied return for investors in Zephyr remains significant, at 429%, wrote Foucaud.
This potential upside is shown in the difference between the £0.18 per share target price and the England-based energy company's current share price of £0.04.
Production Start Revised
Foucaud explained that the start of production from the Slawson wells in North Dakota's Williston basin had been pushed back six months and is, thus, one reason for the equity raise.
Now, production is expected to commence sometime in Q4/23 or Q1/24, when construction of the surface facilities, which was begun later than planned, is finished.
Temporary Bump in Capex
Zephyr also raised equity because it must pay the costs associated with the blowout of the State 36-2 well in Utah's Paradox basin. Eventually, the insurer will reimburse the energy firm for most of this expense, but Zephyr is responsible for it in its entirety in the meantime.
As for the current status of State 36-2, it is slated for a restart this month and is projected to produce about 10,000,000 cubic feet per day (10 MMcf/d) of natural gas, according to Foucaud. He added, though, it could yield as much as 15 Mmcf/d. Were production to be greater than initially expected, a larger gas processing plant would be needed.
State 36-2 also should positively impact Zephyr's reserves, Foucaud pointed out.
New Financial Forecasts
Given the recent developments, Auctus revised some of its estimates on Zephyr, wrote Foucaud. Auctus removed two 2023 exploration wells from its model and increased the expected performance of the wells in the Paradox. These changes led to a reduction in capex for the full-year 2023 (FY23) and FY24.
Auctus' new capex estimates are US$24 million (US$24M) for FY23, down from US$34M, and US$44M for FY24, down from US$58M.
As for Zephyr's output, Auctus projects the Slawson, State 36-2, and State 16-2 wells will together produce more than 4,500 barrels of oil equivalent per day (4.5 Mboe/d) in Q1/24, and this will increase to more than 7.5 Mboe/d in Q4/24.
Regarding its cash balance, Auctus estimates Zephyr will have about US$18M net by YE24.
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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Auctus Advisors, Zephyr Energy Plc., June 6, 2023
Zephyr Energy Plc (“Zephyr” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”). Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment banking services to the Company, including the publication and dissemination of marketing material from time to time. MiFID II Disclosures This document, being paid for by a corporate issuer, is believed by Auctus to be an ‘acceptable minor non-monetary benefit’ as set out in Article 12 (3) of the Commission Delegated Act C(2016) 2031 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. It is produced solely in support of our corporate broking and corporate finance business. Auctus does not offer a secondary execution service in the UK. This note is a marketing communication and NOT independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and this note is NOT subject to the prohibition on dealing ahead of the dissemination of investment research.
Author The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus. Not an offer to buy or sell Under no circumstances is this note to be construed to be an offer to buy or sell or deal in any security and/or derivative instruments. It is not an initiation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Note prepared in good faith and in reliance on publicly available information Comments made in this note have been arrived at in good faith and are based, at least in part, on current public information that Auctus considers reliable, but which it does not represent to be accurate or complete, and it should not be relied on as such. The information, opinions, forecasts and estimates contained in this document are current as of the date of this document and are subject to change without prior notification. No representation or warranty either actual or implied is made as to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained in this document. Auctus’ and related interests The persons who produced this note may be partners, employees and/or associates of Auctus.
Auctus and/or its employees and/or partners and associates may or may not hold shares, warrants, options, other derivative instruments or other financial interests in the Company and reserve the right to acquire, hold or dispose of such positions in the future and without prior notification to the Company or any other person. Information purposes only This document is intended to be for background information purposes only and should be treated as such. This note is furnished on the basis and understanding that Auctus is under no responsibility or liability whatsoever in respect thereof, whether to the Company or any other person.
Investment Risk Warning The value of any potential investment made in relation to companies mentioned in this document may rise or fall and sums realised may be less than those originally invested. Any reference to past performance should not be construed as being a guide to future performance. Investment in small companies, and especially upstream oil & gas companies, carries a high degree of risk and investment in the companies or commodities mentioned in this document may be affected by related currency variations. Changes in the pricing of related currencies and or commodities mentioned in this document may have an adverse effect on the value, price or income of the investment. Distribution This document is directed at persons having professional experience in matters relating to investments to whom Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("FPO") applies, or high net worth organisations to whom Article 49 of the FPO applies. The investment or investment activity to which this communication relates is available only to such persons and other persons to whom this communication may lawfully be made (“relevant persons”) and will be engaged in only with such persons.
This Document must not be acted upon or relied upon by persons who are not relevant persons. Without limiting the foregoing, this note may not be distributed to any persons (or groups of persons), to whom such distribution would contravene the UK Financial Services and Markets Act 2000 or would constitute a contravention of the corresponding statute or statutory instrument in any other jurisdiction. Disclaimer This note has been forwarded to you solely for information purposes only and should not be considered as an offer or solicitation of an offer to sell, buy or subscribe to any securities or any derivative instrument or any other rights pertaining thereto (“financial instruments”). This note is intended for use by professional and business investors only. This note may not be reproduced without the prior written consent of Auctus. The information and opinions expressed in this note have been compiled from sources believed to be reliable but, neither Auctus, nor any of its partners, officers, or employees accept liability from any loss arising from the use hereof or makes any representations as to its accuracy and completeness. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this note. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. This information is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company and its subsidiaries. Auctus is not agreeing to nor is it required to update the opinions, forecasts or estimates contained herein. The value of any securities or financial instruments mentioned in this note can fall as well as rise.
Foreign currency denominated securities and financial instruments are subject to fluctuations in exchange rates that may have a positive or adverse effect on the value, price or income of such securities or financial instruments. Certain transactions, including those involving futures, options and other derivative instruments, can give rise to substantial risk and are not suitable for all investors. This note does not have regard to the specific instrument objectives, financial situation and the particular needs of any specific person who may receive this note. Auctus (or its partners, officers or employees) may, to the extent permitted by law, own or have a position in the securities or financial instruments (including derivative instruments or any other rights pertaining thereto) of the Company or any related or other company referred to herein, and may add to or dispose of any such position or may make a market or act as principle in any transaction in such securities or financial instruments. Partners of Auctus may also be directors of the Company or any other of the companies mentioned in this note. Auctus may, from time to time, provide or solicit investment banking or other financial services to, for or from the Company or any other company referred to herein. Auctus (or its partners, officers or employees) may, to the extent permitted by law, act upon or use the information or opinions presented herein, or research or analysis on which they are based prior to the material being published.