Turner Pope Research Note, 18 December 2024
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Further to its announcement on 10 October 2024, in which Zephyr outlined its intention to drill an extended lateral on the State 36-2R well (the ‘Well’), the Group has today confirmed it has entered into binding documentation to fully fund the expected drilling, completion and production test costs plus a margin for contingency (the ‘funding’). The funding totals an aggregate US$7.5m, an increase from the initial amount of US$7.0m, and has been secured from a US-based industry investor (the ‘wellbore investor’), in exchange for a 50% non-operated working-interest in the single well. The wellbore investor will not receive any further interest or option in the Paradox project, although Zephyr has retained a right of first refusal to repurchase the working interest at a discount to fair market value in the event the investor chooses to sell it in the future. Going forward, the wellbore investor will cover its pro rata portion of the Well’s operating and overhead costs, for which it will receive 50% of its net revenues from the time of first production, with no catch-up period or other preferential rights to the investor. This and the fact that the proposal contains no equity or debt element while permitting Zephyr to retain operatorship, all point to a positive scenario for shareholders and an external industry endorsement of the single well’s potential economics. Other funding discussions with different industry and asset-level financial partners in respect of the larger, long-term development of the wider Paradox project remain ongoing, and the current funding grants Zephyr significant flexibility in pursuing future development partners. We would draw your attention to the various disclaimers in the document both at the beginning and at the end of the note. Retail clients (as defined by the rules of the FCA) must not rely on the research document. In particular you should note that the research document is a non-independent marketing communication. The analyst who has prepared the research is aware that TPI provides research to Zephyr Energy plc. Accordingly the research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibitions on dealing ahead of its dissemination. The information in the document is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The material contained in the document is general information intended for recipients who understand the risks associated with equity investment in smaller companies. It does not constitute a personal recommendation as defined by the FCA or take into account the particular investment objectives, financial situation or needs of individual investors nor provide any indication as to whether an investment, a course of action or the associated risks are suitable for the recipient. |
