Auctus Advisers Research Note, 3rd January 2023

Please click HERE to see the latest research published by Auctus Advisers

Very accretive acquisitions boost production and add resources upside

• Zephyr is acquiring the 25% WI across the White Sands Unit (WSU) in the Paradox it does not hold from Rockies Standard Oil (RSO). RSO cannot fund its share of the capex programme. In return, Zephyr will issue to RSO US$3 mm in shares at a price of 6.05 p/sh (~11% above the share price the day prior to the announcement). One third of the shares will be issued on closing in January and the balance on FID (expected in 2H23).
• The transaction adds 0.5 mmboe 2P reserves, 7 mmboe 2C resources and 67 mmboe prospective resources net to Zephyr. It also adds ~800 boe/d production (25% of 3,300 boe/d) at YE23.
• Zephyr is also acquiring non-operated WI in six further wells in the Williston Basin, with ~0.55 mmboe net 2P reserves, for US$2.9 mm in cash. Upcoming net capex of US$8.9 mm to bring these wells into production in 1Q23 is expected to boost overall FY23 Williston production from 1.1 mboe/d (our numbers) to 1.55-1.75 mboe/d.
• The Williston acquisition is funded with a US$8 mm asset backed 12 month loan at 12% interest. Zephyr will also pay 1% royalty on the new Willison wells.
• With overall production of ~4.8 mboe/d by YE23, production growth is accelerating. We forecast ~6.0 mboe/d in 2024.
• We have increased our target price from £0.16/sh to £0.20/sh to incorporate the accretive nature of the acquisitions. The ongoing drilling programme has an unrisked value of £0.14/sh just based on the contingent resources in the Cane Creek reservoir. Success in the C-9 reservoir around YE23 could add a further £0.13/sh.